Games and Advertising Lift Tencent to Record First Quarter Profit

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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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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.

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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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