Tencent Revenue Growth Strong, But Adjusted Earnings Miss

17 May, 2018, 09:31 | Author: Arnold Perez
  • Chart of the day

The results are likely to please Tencent's army of investors.

On Wednesday, Tencent reported its earnings for the first quarter that beat Wall Street expectations boosted by its hugely successful gaming business.

Due to the fact that social media services such as Facebook, Twitter, Instagram and Snapchat are inaccessible in China, there exists a whole ecosystem of social networking and messaging platforms that are immensely popular in and around China but hardly known anywhere else in the world. In retail and e-commerce - traditionally viewed as rival Alibaba Group's turf - it has splashed out billions since 2017 on deals at home and overseas.

Jefferies analysts wrote in an accompanying note that Tencent's gross profit margin was higher than expected with its " strong mobile game rebound", but added a structural business mix change might continue to weigh on the firm's margins.

"The results were good even without the one-time gains, but the gains made it even better", said Bhavtosh Vajpayee, a Hong Kong-based research analyst at Bernstein.

Tencent reported a 111 percent rise in "other" revenue in the quarter to 15.96 billion yuan on growth in payment solutions and cloud services.

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Revenue rose 48% to 73.5bn yuan, compared with analyst estimates for 70.8bn yuan.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future. "Smartphone games revenues alone were up 68 percent year-on-year to 21.7 billion yuan, thanks to titles such as 'Honour of Kings'". That helped drive a 55% local currency gain in advertising revenue to 10.69 billion yuan.

The operating profit surged 59 percent to CNY 30.692 billion while the net profit going 61 percent higher to CNY 23.290 billion. Tencent attributed the increase to growth in digital content services such as live broadcast, video streaming and in-game virtual item sales, and its Karaoke app WeSing.

Tencent had warned in March that heavy spending could crimp profit, sending shares sharply lower.

The company is exploring ways to integrate short video into its social network platforms, Tencent chairman and chief executive Pony Ma Huateng said in March during annual parliamentary meetings in Beijing.

The drop was partly triggered by the company's warning in March that margins may be hurt by its plan to invest "aggressively" this year into areas including video content acquisition and payment subsidy.

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