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Games, social networks fuel Tencent's 61% YOY Q1 profit gain


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Games, social networks fuel Tencent's 61% YOY Q1 profit gain

Tencent Holdings Ltd. reported a 61% jump in first-quarter net profit attributable to shareholders at 23.29 billion Chinese yuan, up from 14.48 billion yuan a year earlier, primarily driven by its mobile gaming and social network businesses.

The Shenzhen, China-based tech conglomerate saw first-quarter revenue increase 48% to 73.53 billion yuan from49.55 billion yuan a year earlier. Online games and social networks contributed 64% of that growth at 39% and 25%, respectively, Tencent President Martin Lau said during an earnings call. Online advertising made up 14% of the total revenue.

Online games revenue increased 26% to 28.78 billion yuan from 22.81 billion yuan in the year-ago period, led by smartphone games such as "Honour of Kings" and newly launched "QQ Speed Mobile." Personal computer game revenues were flat compared to the year-ago period, with Lau citing users' shift to mobile as the cause.

Chief Strategy Officer James Mitchell said that, despite record first-quarter revenue for PC game "Dungeon & Fighter," other PC games could experience headwinds due to mobile games' popularity. He acknowledged the monetization opportunities of e-sports, but said Tencent is focused on boosting user engagement and attracting new users.

Lau said Tencent is capitalizing on tournament games such as "Fortnite" and "PlayerUnknown's Battlegrounds" because of their sizeable revenue opportunities, although "PlayerUnknown's Battlegrounds" is expected to negatively impact short-term financials as it is not monetized in China and the company is incurring marketing and operating expenses. Meanwhile, Mitchell said Tencent has started preregistration for "Fortnite" in China.

The company reported first-quarter EPS of 2.44 yuan. The S&P Capital IQ consensus estimate for the period had predicted EPS of 1.82 yuan on a normalized basis and 1.50 yuan on a GAAP basis.

Social media networks

Social network revenues grew 47% to 18.10 billion yuan in the first quarter, up from 12.3 billion yuan in the year-ago period, attributed to Tencent's digital content offerings including live broadcast, video-streaming subscriptions, monetizing music service WeSing and in-game sales.

Video subscription revenue for the first quarter rose 85% year over year on the back of a rapid uptick in video subscriptions due to exclusive content and increased payment penetration.

Tencent's key platforms Weixin and WeChat had combined monthly active users of 1.04 billion, a 10.9% year-over-year increase.

Tencent Chairman and CEO Ma Huateng said more users and developers are embracing its mini program ecosystem. According to Lau, mini games widened its gaming audience as a third of players have not played Tencent game apps.

"We have started light monetization of mini games via advertisement and some virtual item sales," Lau said.

Tencent's news feed service QQ KanDian secured 80 million daily active users, driving a 300% year-over-year increase in video views. Traffic growth led to a sequential increase in revenue, Mitchell said.

Fintech, cloud growth

Occupying the remaining 22% of the total revenues was Tencent's other business segment, which saw a triple-digit year-over-year spike in revenue, largely fueled by Tencent's fintech and cloud businesses, which are expanding.

Cloud services revenue more than doubled year over year as the company rolled out new products via its data analytics and artificial intelligence technologies, and expanded its cloud services market share in the games and video industries.

CFO John Lo said Tencent, which had about 46,000 employees at first quarter-end, saw its number of staff in the cloud and online game businesses grow by 17%.

Lau acknowledged the "very heavy" competition in payment services, adding that the numerous subsidies provided by its rivals requires Tencent to follow suit.

He said Tencent is "already spending quite of bit of money in terms of subsidy," adding that it will continue in the near term, and expects its peers to also "invest heavily" in the market.

Tencent continued to invest in "strategic priority areas such as video, payment, cloud, AI and smart retail," as signalled by Ma in the company's 2017 first-quarter earnings call.

As a result the tech giant registered net debt of 14.53 billion yuan for the first quarter, compared to net cash of 16.33 billion yuan at 2017-end, which Lo said was a direct result of increased M&A investments.

As of May 16, US$1 was equivalent to 6.37 Chinese yuan.