Tencent Net Rises to Record on Chinese, Korean Game Sales

Tencent Holdings Ltd. (700), China’s biggest Internet company, posted a record quarterly profit of 2.95 billion yuan ($467 million) after online game sales jumped.

First-quarter net income increased 2.8 percent from a year earlier, Tencent said in a Hong Kong stock exchange filing yesterday. That matched the 2.95 billion-yuan average of 10 analyst estimates compiled by Bloomberg. Revenue rose 52 percent to 9.65 billion yuan.

Tencent outpaced smaller rivals NetEase Inc. (NTES) and Shanda Games Ltd. (GAME) in luring players in China’s $6.5 billion online games market and added gamers overseas, including in South Korea, to step up international expansion. Chief Executive Officer Pony Ma is upgrading services such as messaging and microblogging to win Chinese smartphone users and sustain his company’s 44 percent surge in Hong Kong trading this year.

“The company has always done very well in China, but now it has started getting some traction overseas,” said Kevin Tam, a Hong Kong-based analyst at Core Pacific-Yamaichi International who rates Tencent buy. “A surprise was the ramp-up in the e-commerce division.”

Tencent rose 2.5 percent, the most since April 30, to HK$225 at the close in Hong Kong. The stock is the best performer in the city’s benchmark Hang Seng Index this year and has outperformed the U.S.-traded shares of Baidu Inc. (BIDU), China’s biggest search-engine company, and NetEase, the second-biggest Chinese online games company.

QQ Messaging

Tencent’s earnings in the first quarter of last year included a one-time gain of 459 million yuan from the acquisition of U.S. games publisher Riot Games.

In the first quarter of 2012, Tencent added 30.9 million active user accounts for its flagship QQ instant-messaging service, China’s most-popular, for a total of 751.9 million.

Sales of Internet value-added services, including online games and QQ-related subscription fees, rose 41 percent to 7.38 billion yuan, Tencent said.

Tencent posted a “big step-up” in e-commerce revenue last quarter, President Martin Lau said in a conference call yesterday. The company booked 752.8 million yuan of revenue from its e-commerce division in the first-quarter, the first time the company disclosed sales figures from the unit.

The company increased sales of consumer electronics in eastern Chinese cities including Shanghai, Lau said.

Korean Popularity

Tencent’s “League of Legends” game is the most-popular title in South Korea with 21 percent market share, according to a May 12 report by Barclays Capital analyst Alicia Yap.

Nexon Co., developer of Tencent’s “Dungeon & Fighter” game, increased its sales in China by 89 percent in the first quarter, the Tokyo-based company reported last week.

China’s online games market expanded 18 percent to 41.4 billion yuan in 2011, according to an estimate by iResearch in January. Growth may slow to 12 percent this year, rising to 46.5 billion yuan, the research company says.

Online advertising sales jumped 92 percent to 540 million yuan last quarter as Tencent attracted marketing spending on its search-engine and social-networking sites.

“The economy has slowed, and that has had a knock-on impact within some advertiser industries,” Tencent Chief Strategy Officer James Mitchell said on the call. The company overcame the effects of the economic slowdown by offering “performance-based” ads on its social networks such as Qzone and Pengyou, Mitchell said.

Tencent has 425 million registered users on its microblog service, the company said yesterday. Sina Corp. (SINA) yesterday said it had 324 million microblog users at the end of March.

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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