Markets

Tencent beats expectations with strong Q1 profit

Tencent beats expectations with strong Q1 profit

Bernstein analysts estimate Tencent's merchant subsidy will be around $1 billion in 2018 while subsidies by Alibaba's Ant Financial Services affiliate could be as high as between $2 and $4 billion.

Tencent Holdings Ltd. posted a quarterly profit that exceeded estimates, bolstered by mobile game blockbusters like PlayerUnknown's Battlegrounds as users on China's most popular social network surpassed a billion for the first time.

Tencent, owner of the giant WeChat messaging and social network platform, has been opening its wallet to sustain growth as gaming from desktop gaming slows.

The top Chinese internet stock has ramped up spending as it competes with e-commerce rival Alibaba (BABA) on many fronts.

The stock climbed as much as 7.1 per cent in Hong Kong, its biggest intraday gain in more than two years. But the cost of revenue in that category doubled to 11.91 billion yuan, due to subsidies and promotional expenses.

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.




He added that Tencent's WeChat ecosystem gives it a unique position to take advantage of an enlarged market.

Revenue rose 48 per cent to 73.53 billion yuan, beating the 70.93 billion yuan average estimate of 14 analysts, according to Thomson Reuters data.

The operating profit surged 59 percent to CNY 30.692 billion while the net profit going 61 percent higher to CNY 23.290 billion. Meanwhile, Tencent's overall online advertising business achieved 55 per cent year-on-year growth in revenues. The company secured the rights to distribute both "battle royale" games in China and beyond and said it is just beginning to monetize them. The increase there was mainly driven by growth at smartphone games, including existing titles such as Honour of Kings and newly launched titles MU Awakening and QQ Speed Mobile.

Tencent's shares have fluctuated sharply this year. "Fortnite" was developed by Epic Games, a company that Tencent has a large stake in.

That game has gone viral with more than 40 million active users monthly across consoles and PCs.

Tencent, the world's largest videogame company, has lost nearly $90 billion of its market value since March, due to concerns about slowing growth and shrinking margins. The company's investment in original content helped drive paid video subscriptions up 85 percent on the year.


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