Tencent Rises as Web Game Sales Increase: Hong Kong Mover

Tencent Holdings Ltd., Asia’s largest Internet company, climbed the most in almost six months in Hong Kong trading after posting a 35 percent gain in revenue from games played on desktops and its WeChat messaging app.

Tencent climbed 4.6 percent, the most since May 20, to HK$410.80 at the close in Hong Kong trading. The stock has advanced 65 percent this year.

Billionaire Ma Huateng’s company is boosting spending on development and marketing to popularize games and services including the QQ messaging app and WeChat, known as Weixin in China. The Shenzhen, China-based company hired soccer superstar Lionel Messi to promote the apps as it pursues new revenue streams, including charging for emoticons, to compete with Alibaba Group Holding Ltd. and Sina Corp. for China’s 464 million mobile Internet users.

“What people are excited about is the open mobile platform on Weixin,” said Billy Leung, an analyst at RHB Research Institute Sdn. in Hong Kong. “Essentially, Weixin opened up people to games.”

Tencent’s five games released through QQ and Weixin had 570 million registered users within three months, President Martin Lau said yesterday during an earnings conference call.

Targets Raised

Third-party developers will be invited to write games for QQ and WeChat’s mobile apps, and it expects third-party games to eventually constitute the majority of offerings, Lau said.

Tencent’s price target was raised after the earnings report by Jefferies Group LLC, Standard Chartered Plc, HSBC Holdings Plc, Brean Capital LLC and Deutsche Bank AG.

“We expect WeChat mobile games to take off in 2014,” Cynthia Meng, a Hong Kong-based analyst at Jefferies, said in a note increasing her price target to HK$492.

Revenue rose 34 percent to 15.5 billion yuan ($2.5 billion) as sales from Internet games rose to 8.4 billion yuan in the same period, the company said in a statement to Hong Kong’s stock exchange yesterday.

The company posted third-quarter profit that missed analyst estimates due to higher costs to compete against Alibaba, Sina and Baidu Inc., owner of China’s largest search engine. Net income rose 20 percent to 3.87 billion yuan, the company said. That compared with the 4 billion-yuan average profit of seven analyst estimates compiled by Bloomberg.

Adding Emoticons

More games and emoticons will be added for WeChat’s users outside of China, Lau said. WeChat will become an important channel for merchants and e-commerce, he said.

“We are very focused on building user experience,” Lau said during the call when asked about competition with Alibaba. “When you have the best experience users will stay, and when users stay they keep each other, and that’s the biggest value of a social network.”

Selling and marketing expenses climbed 79 percent in the September quarter from the year earlier, with general and administrative spending rising 29 percent amid a boost to research and development.

“Tencent has spent a lot of money on marketing and sales, including hiring famous people,” Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong, said by phone. “Competition in the industry has tensed up and a lot of other companies are also pushing for online games.”

Alibaba, Sina

Sina’s Weibo, a microblogging service, had more than 60.2 million daily active users from June to September. Alibaba, China’s largest e-commerce company, plans to boost users of its Laiwang instant-messaging app to 100 million.

Tencent also expanded into e-commerce with platforms including business-to-customer website Yixun.com and Paipai.com, which links individual buyers and sellers. Tencent paid $448 million in September for a stake in Sogou, China’s third-largest search engine, to expand its Web offerings in the world’s largest market.

More than 84 percent of China’s Internet users regularly access instant messaging, making it the most popular online application in the country, followed by search engines with about 80 percent usage, according to data compiled by Bloomberg.

Monthly active users for QQ fell 0.4 percent to 815.6 million people by the end of September from the end of June. WeChat saw monthly active users rise 15 percent to 272 million during the same period. That compares with about 1 million instant-messaging accounts in 1999, according to Tencent’s website.

Tencent is counting on WeChat, which targets more upscale users than QQ, for its global expansion.

WeChat revenue may reach 4.9 billion yuan next calendar year as the company moves faster than expected in monetizing the application, John Choi, an analyst at Daiwa Securities Group Inc. in Hong Kong, wrote in a Nov. 8 note.

Ma is China’s fourth-richest man, with an estimated net worth of $10.5 billion, according to the Bloomberg Billionaires Index.

Before it's here, it's on the Bloomberg Terminal.