Tencent Falls to 7-Month Low After Profit Misses Estimates

Tencent Holdings Ltd. (2988), China’s biggest Internet company by revenue, fell to the lowest level in more than seven months in Hong Kong trading after reporting second-quarter profit that missed analysts’ estimates.

The company dropped as much as 7.6 percent to HK$176.10, the lowest intraday price since Jan. 4, and traded at HK$180.70 as of 10:24 a.m. local time. The stock is the worst performer on Hong Kong’s benchmark Hang Seng Index today.

Tencent yesterday reported profit grew 23 percent last quarter, missing analysts’ estimates, afeter the company increased spending to develop services including its microblogging and electronic-commerce websites. The Shenzhen, south China-based company’s stock has underperformed Chinese Internet rivals including Baidu Inc. (BIDU) and Sina Corp. (SINA) this year as earnings growth is projected to slow.

“We think that Tencent shares could come under pressure in the near term due to a negative market reaction to the higher operating expenses,” Samsung Securities analyst Paul Wuh wrote in a report today. He cut his estimates for Tencent’s profit next year by 3 percent, citing the company’s higher spending.

Second-quarter net income increased to 2.35 billion yuan ($366 million) from 1.92 billion yuan a year earlier, Tencent reported after the close of Hong Kong markets yesterday. This lagged behind the 2.58 billion yuan average of 13 analysts’ estimates compiled by Bloomberg. Sales climbed 44 percent to 6.74 billion yuan from 4.67 billion yuan.

General and administrative expenses more than doubled to 1.36 billion yuan, compared with 666 million yuan a year earlier, Tencent said. Selling and marketing expenses rose 60 percent to 369.5 million yuan, it said.

In the second-quarter, Tencent added 27.6 million active user accounts for its QQ instant-messaging service, China’s most-popular, for a total of 701.9 million at the end of June.

Sales of Internet value-added services, including online games and QQ-related subscription fees, rose to 5.39 billion yuan from 3.58 billion yuan, Tencent said. Online advertising sales increased 29 percent to 512.3 million yuan.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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