Tencent Record Profit Fueled by Mobile Games, Entertainment

Tencent Reports Record 1Q Earnings
  • Online advertising revenue jumps 73 percent on better traffic
  • Viewership of NBA games rose, attracting large advertisers

Tencent Holdings Ltd.’s investment in NBA broadcasts, mobile games and entertainment content is paying off, driving first-quarter earnings at Asia’s biggest instant messaging company to a record.

Net income climbed 33 percent to 9.18 billion yuan ($1.4 billion), the Shenzhen-based company said on Wednesday. That compares with the 8.71 billion-yuan average of estimates compiled by Bloomberg. Sales also beat expectations.

After converting WeChat and QQ from message services into social network giants, with more than a billion combined users, Tencent added streaming content such as National Basketball Association games to attract big-budget advertisers. That spurred a 73 percent surge in online ad revenue during the quarter, even as the Chinese economy slows.

“Advertising is rising at a much faster pace than the rest of the company," said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. "It has a huge advantage in attracting advertisers with its huge traffic volume via instant messaging, its portals and video sites."

Sales jumped 43 percent to 32 billion yuan in the quarter, beating estimates for 30.3 billion yuan.

Revenue from the Value Added Services unit, which includes online games and messaging, rose 34 percent to 25 billion yuan. Adding titles such as Wind Saga and Kungfu Frontier not only helps make money from existing users, it attracts even more customers to the platforms.

Mobile gaming revenue rose 16 percent from the December quarter to 8.2 billion yuan, the company said. Tencent is buying up the rights for anime, comics and novels to convert them into content and boost its slice of a China mobile gaming market expected to reach 68.8 billion yuan by 2018.

WeChat had 762.4 million monthly active users and the mobile version of QQ had 658 million users at the end of the quarter. Adding online payments and facilitating e-commerce are part of Chairman Ma Huateng’s efforts to make money from China’s 688 million Internet users.

Shares of Tencent fell 1.1 percent to HK$161.10 in Hong Kong before earnings were announced. The stock has gained 5.6 percent this year, compared with a 2.4 percent drop for New York-listed Alibaba Group Holding Ltd.

To strengthen its dominance in instant messaging, it created a service called Enterprise Weixin for the office that enables chat and company notices.

While Tencent is increasing advertising on the Weixin Moments social network function, it’s trying to minimize the disruption to users.

“The ad load will gradually increase. I want to stress the point of gradually,” President Martin Lau told an analyst briefing. “There is a lot of work for us to do to accompany that, to make sure the overall user experience isn’t impacted negatively.”

Ma has identified online health care, education and the anime industry as potential areas of growth for this year. In a proposal to China’s National People’s Congress this year, Ma suggested that the government allow doctors to freelance, build online personal medical files, and relax digital content policies to help China’s Internet sector to prosper.

The company is in the process of raising as much as $4 billion in a syndicated loan to fund its expansions, people familiar with the matter said in May.

Tencent announced 40 deals worth $19.6 billion of acquisitions and investments in the past 12 months, according to data compiled by Bloomberg.

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