Success of games helps Tencent to almost 70% rise in quarterly profits
Naspers shares jumped to a new record on the news
Hong Kong — Tencent posted a better-than-expected 69% rise in quarterly profit, riding the success of games such as Honour of Kings and a rapidly expanding advertising business.
China’s largest social network operator reported net income of 18-billion yuan ($2.7bn) in the September quarter, compared with projections for 15.8-billion yuan. Revenue gained 61% to 65.2 billion yuan, versus the 61-billion yuan projected.
Shares in JSE-listed Naspers, which owns a third of Tencent, rose 2.98% to a record R3,698.50 on the news on Wednesday.
Tencent, the operator of the WeChat messaging and entertainment service that has become near-ubiquitous across China, is pushing more and smarter advertising to its billion-plus users.
The company, which acquired 12% of Snapchat owner Snap earlier in November, is also exploring new sources of growth in the cloud, financial services and movies and music. Shares in the company closed on Wednesday 1.3% lower.
"Tencent still has a lot of potential for growth," said Billy Leung, an analyst with Haitong International Securities in Hong Kong. "Advertising growth was strong, as it improved on using big data and artificial intelligence for social ads."
Investors bet earlier in 2017 that some of the company’s boldest investments would finally pan out, creating one of the world’s most richly valued companies in the process.
The global leader in gaming tapped the spending power of about 200-million players for Honour of Kings and other blockbusters, helping mobile games revenue surpass that of desktops for the first time in the June quarter.
A still-nascent advertising and finance business on WeChat has also expanded at a rapid clip, furthering its ambition of eventually becoming an advertising powerhouse along the lines of Alibaba or Facebook.
For the longer term, it is investing billions of dollars in artificial intelligence research, both to better target marketing as well as underpin future product categories. Tencent is said to have developed an autonomous driving system, among other areas it’s delving into.
While it is unclear what it plans with its chunk of Snap, the acquisition comes after a failed attempt to pick up Whatsapp, and may mark a renewed effort to feel out markets beyond its home turf. Tencent has said the pair will share experiences and expertise in social networking.
On the deals front, the stellar debut of e-books unit China Literature may prompt more mega-spinoffs. It’s already said to be preparing its music arm for an initial public offering that could raise at least $1bn in 2018.
"Tencent has been investing in enhancing its technology on all business fronts," Saiyi He, an analyst with Huatai Research in Hong Kong, wrote last week. It "should be able to effectively increase its market share in new media advertising".