A Tencent sign is seen in Jiaxing, Zhejiang province, China. Picture: REUTERS
A Tencent sign is seen in Jiaxing, Zhejiang province, China. Picture: REUTERS

Hong Kong — High demand for video games during Covid-19 lockdowns buoyed Tencent Holdings' first-quarter revenue and profits, with blockbuster games PlayerUnknown's Battlegrounds Mobile and Honor of Kings helping it beats forecasts. Tencent is partly owned by JSE-listed technology investment group Naspers.

The Chinese company's video games business, which generates more than a third of its revenue, saw growth of 31% to 37.30-billion yuan ($5.26bn) as people idled away the time in front of screens and used online multiplayer games to virtually hang out with friends.

Its flagship games PlayerUnknown's Battlegrounds (PUBG) Mobile and Honor of Kings topped mobile games revenue globally in March, analytics firm Sensor Tower said, reinforcing Tencent's status as the world's largest gaming firm by sales.

In-game spending on things like power-ups, object skins and accessories on PUBG Mobile alone surged to $232m, more than three times what the title generated in March 2019.

However Tencent, a gaming and social media giant, warned that it expected some of the business boosts it enjoyed during lockdowns to be temporary.

“We expect in-game consumption activities to largely normalise as people return to work, and we see some headwinds for the online advertising industry,” it said.

Online ad revenue

Global spending on digital games surged to $10bn in March, the highest monthly total ever, according to Nielsen's game data arm SuperData.

Tencent's stock has jumped nearly 14.38% in 2020, against a 15% decline in Hong Kong's broader Hang Seng index. Meanwhile shares in its US-listed rival, which is focused on e-commerce rather than gaming, have dipped by almost 6% over the same period.

Alex Liu, an analyst with China Renaissance, said the explosive boost from lockdowns to the game business is unlikely to be sustained, but strong deferred revenue will likely feed through the year and a pipeline of notable coming new titles, including Dungeon & Fighter Mobile, would deliver robust growth.

“The pandemic expedited the digitalisation of people's way of life. ... Tencent is very mature in the monetisation of its current products,” said Liu.

Tencent's overall revenue jumped 26% to 108.07-billion yuan ($15.24bn), while net profit rose 6% to 28.90-billion yuan for the three months trough March, with both ahead of the average analyst estimate, Refinitiv data showed.

The company said its group online advertising revenue surged by 32%, with gaming and education-related ads on WeChat and its other apps helping it buck a broader advertising downturn as the global economy reels from the pandemic.

Social media advertising revenue grew 47%, highlighting a shift in behaviour as many people  were confined to their homes. However, its revenue from media ads fell 10% due to lower revenues from its video and news platforms.