Games and Advertising Lift Tencent to Record First Quarter Profit


Revenue grew by 48% from the same period a year ago on the back of strong performance in its online advertising, gaming and messaging services.

Tencent reported net revenue of 73.5 billion yuan (about US$11.6 billion) and a net profit of 23.3 billion yuan (almost US$3.7 billion).

Jefferies revised up its 2018 revenue target by 1 per cent and lowered the non-GAAP earnings forecast by 4 per cent to reflect a higher revenue contribution from ad and financial services, they wrote.

But Credit Suisse lowered its target price for the stock to HK$523 from HK$540 after the results, as did Jefferies to HK$515 from HK$530. Investors began to worry that their margins were under greater pressure, as the company continued to increase its investment to high-growth markets such as streaming video, digital payment, smart retail, cloud services and artificial intelligence.

Tencent has been on a shopping spree, expanding into different sectors including e-commerce and automobiles. Asia's largest company by market capitalization, Tencent reported $14 billion debt at the end of March, compared with $16 billion of cash at the same time previous year.

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Honour of Kings continues to be a core source of earnings.

Has Tencent lost its creative mojo?

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.

As our chart illustrates, there's no need for Tencent to shy away from comparisons with the world's largest social networking company.

Over the past year Tencent has completed 62 deals involving direct investments and mergers and acquisitions, according to data compiled by Bloomberg. PC-based games, meanwhile, took in sales of 14.1 billion RMB ($2.2 billion) to remain flat over the past 12 months.

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The overall online games business was boosted by two major games. That was followed by a $95 million stake in online short video platform Pear, after the end of the quarter.

In late 2017, Tencent Holdings Ltd. became Asia's most highly-valued tech company and the region's second-most valuable public company (behind Alibaba) as the first firm to cross the $500 billion mark.

The internet giant has also plunged into offline retail sectors. 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.

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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