Published: Thu, May 17, 2018
Industry | By Dora Warner

Chinese online giant Tencent posts 61% rise in net profit

Chinese online giant Tencent posts 61% rise in net profit

Warnings that Tencent, Asia's highest-valued tech company, might suffer a rare poor quarter of business proved unwarranted after the company smashed analyst expectations for its latest earnings thanks to its fast-growing mobile games business. Another title - Honour of Kings - was the world's highest-grossing mobile game past year thanks to its China-based users and Tencent has been pushing it to worldwide audiences. Profit was up 61% over the same period one year ago.

"We expect Tencent to consolidate both the PC and mobile games markets", Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co, said in a report. (Fortnite is due to launch in China imminently). Company president Martin Lau Chi-ping had warned in March during its 2017 earnings call that this year Tencent would aggressively step up its investments in long- and short-form video content, digital payments, cloud services, artificial intelligence and smart retail, even though it could harm the company's profitability in the short term.

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Tencent has invested heavily in video in the past year.

In a battle for the world's largest mobile payment and retail market, Tencent has splashed out billions forging alliances with new partners like Carrefour and subsidising merchants to lure them onto its payment-to-messenger super app WeChat. All businesses contributed to growth, with revenues going up 340 percent at Value Added Services, and rising 26 percent at online games. Finally, revenues from the online advertising business increased by 55 percent, with social and other advertising revenues up 69 percent and media advertising revenues lifting 31 percent.

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Monthly active user accounts (MAU) declined to 805.5 million, down 6.4 percent from the year before and from 783 million in the previous quarter.

As our chart illustrates, there's no need for Tencent to shy away from comparisons with the world's largest social networking company. Tencent has big stakes in several notable Chinese companies, including e-commerce giant JD.com (JD).

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Yet, Tencent managed to come up with another hit title "Fortnite", following the tremendous success of games like "Honour of Kings".

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