Tencent shares rise after Q1 profit beats

Tencent shares rise after Q1 profit beats

Andrew Cummings
May 17, 2018

Tencent Holdings, in which JSE-listed Naspers holds a 31.2% stake, posted first-quarter profit that blew past analysts' estimates, bolstered by mobile game blockbusters like PlayerUnknown's Battlegrounds.

Tencent reported revenue of $11.7 billion and a net profit of $3.8 billion for the first quarter of 2018, compared to Facebook's $12.0 and $5.0 billion, respectively.

Operating margin rose to 42 percent from 39 percent in the first quarter of previous year. Revenue from smartphone games alone was up more than 68% compared to the same quarter in 2017 to just over 21.7 billion yuan with the help of titles like Honour of Kings. Tencent said that there was "double digit growth" in terms of daily active users for the game. Meanwhile, Tencent's overall online advertising business achieved 55 per cent year-on-year growth in revenues. Tencent has the rights to run the game in China but said that it is "yet to be monetized", highlighting the potential future of the title.

In the video content sector, Tencent poured a total of $1.1 billion into two rivals in a 24-hour period, investing US$632 million and US$461.6 million respectively in Chinese game-streaming platforms Douyu and Huya in March.

Tencent is banking next on the latest global phenomenon-"battle royale" games, in which a large group of players shoot each other until only one remains standing. It's a tournament-style game that is popular in e-sports, which is competitive video gaming. Now not available in China, it is scheduled to be launched there during the next couple of months. Earlier this month it led a US$820 million round of funding in Shenzhen-based UBTECH Robotics, making it the world's most valuable AI start-up with an estimated valuation of US$5 billion.

Tencent shares have been under pressure and are down around 17 percent from the record high seen in January.

In the end, investors have a choice: Operating margin rose or operating margin fell.

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.

The drop was partly triggered by the company's warning in March that margins may be hurt by its plan to invest "aggressively" this year into areas including video content acquisition and payment subsidy.

Tencent's WeChat messenger app now has 1.04 billion users.

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