Tencent reports Q1 beats, 61% profit growth

Marco Green
May 16, 2018

China internet leader Tencent Holdings (TCEHY) reported mixed first-quarter earnings before the market open Wednesday.

Revenue rose 48% to 73.5bn yuan, compared with analyst estimates for 70.8bn yuan. According to Wednesday's release, the company flipped to net debt of 14.5 billion yuan as of March 31, compared to net cash of 16.3 billion yuan at the end of 2017, as a direct result of its investments and mergers and acquisitions activity. That represented a quarter-on-quarter rise of 12 per cent. Operating margin increased to 42% from last year's first quarter of 39%.

Revenue breakdown: VAS business, 46.9B yuan (+34%); Online game, 28.8B yuan; Smartphone game, 21.7B yuan (+68%); Social networks, 18.1B (+47%); Online ad business, 10.7B (+55%); Social and others ad, 7.4B (+69%); Other businesses, 15.96B (+111%).

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth.

However, Tencent expects its PC game business to benefit from the roll-out of the PC versions of popular battle royale titles Fortnite and PlayerUnknown's Battlegrounds. That came after Tencent's rare miss in revenue growth the quarter before, which had prompted worries about a slowdown in games sales, its largest profit driver.

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's "Honour of Kings" remains the highest grossing smartphone game in China's iOS Top Grossing Chart. The tournament-style game is popular amongst the e-sports, which is competitive video gaming. "Fortnite" was developed by Epic Games, a company that Tencent has a large stake in.

In comparison, WhatsApp has 1.5bn monthly active users while 1.3bn people use Facebook Messenger. Tencent's operating margin fell in Q4 and earlier this year, the company said it was focusing on investments over short-term margins. Now not available in China, it is scheduled to be launched there during the next couple of months.

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

Other reports by Click Lancashire

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