ibusinesslines.com December 13, 2018

Tencent blows past estimates as WeChat, games drive growth

17 May 2018, 09:37 | Kelvin Horton

WeChat now has more than a billion users

WeChat now has more than a billion users

However, those feats were dispelled by the technology giant. Revenue was 48% up on a year on year basis. Net profits increased 65% year-on-year to reach $3.82 billion on revenues of $11.7 billion in the three months to end of March.

Operating margin rose to 42 percent from 39 percent in the first quarter of past year.

Due to the fact that social media services such as Facebook, Twitter, Instagram and Snapchat are inaccessible in China, there exists a whole ecosystem of social networking and messaging platforms that are immensely popular in and around China but hardly known anywhere else in the world. The increase there was mainly driven by growth at smartphone games, including existing titles such as Honour of Kings and newly launched titles MU Awakening and QQ Speed Mobile. Tencent said that there was "double digit growth" in terms of daily active users for the game.

Tencent said mobile game revenue hit 21.7 billion yuan (about US$3.4 billion) during Q1 2018, up 68 percent year-on-year, while PC-based games saw sales of 14.1 billion yuan (over US$2.2 billion), roughly the same figures as Q1 2017.

"The most important thing is the halo effect coming through in gaming", Neil Campling, co-head of the global thematic group at Mirabaud Securities, told CNBC by phone on Wednesday.

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 has exclusive release rights for PUBG in China but says the game is "yet to be monetized", implying future additional revenue stream from the title.

Tencent's margins rose or fell last quarter depending on what's included. Fortnite has been developed by video game developer Epic Games who Tencent has a stake in - the game is now unavailable in China, but there are plans to launch the game in the region in the coming months.

Tencent's PC games reported flat revenue of 14.1 billion yuan. It is also on mobile too. Now not available in China, it is scheduled to be launched there during the next couple of months.

"What you are seeing is the "Fortnite" effect, bringing lots of new gamers into e-gaming arena", Campling said.

Shares of Tencent have come under pressure of late and are off by 17% from an all-time high from January.

The gross profit margin in the quarter was more than 50 per cent, higher than the 47 per cent expected by analysts.

Stripping out interest and others, core operating margin slipped below 30 percent from 31 percent a year prior.

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