Tencent reaps rewards of forays into other segments

China's Tencent, the largest Internet company in Asia, ratcheted up spending by 69 per cent in the third quarter to bankroll ventures in content, cloud computing, online finance and video-streaming.
China's Tencent, the largest Internet company in Asia, ratcheted up spending by 69 per cent in the third quarter to bankroll ventures in content, cloud computing, online finance and video-streaming.PHOTO: BLOOMBERG

Q3 income up 43% at Internet giant which has been spending big on new ventures

BEIJING • Tencent Holdings' growing appetite for spending on new businesses helped fuel a stronger- than-expected rise in third-quarter revenue despite a weakening Chinese economy.

Asia's largest Internet company ratcheted up spending by 69 per cent in the period to bankroll forays into content, cloud computing, online finance and video-streaming. That in turn drove a faster- than-anticipated 52 per cent rise in revenue to 40.4 billion yuan (S$8.3 billion) for the operator of social media phenomenon Wechat.

Like arch-rival Alibaba Group Holding, Tencent is intent on exploring new businesses beyond its traditional stronghold, hoping to counter a long-term deceleration of the world's second largest economy.

The company is building data centres to offer cloud services to corporate clients, developing an online finance operation and amassing a content library to underpin a Netflix-like video streaming site. All that comes at a cost.

"Tencent's margins were weaker mostly because of its expansion into new business, including payments and cloud," said Hong Kong- based analyst Li Muzhi at Arete Research Services.

Net income grew 43 per cent to 10.6 billion yuan in the three months ended September, the company said yesterday.

MARKING NEW TERRITORY

Tencent's margins were weaker mostly because of its expansion into new business, including payments and cloud.

HONG KONG-BASED ANALYST LI MUZHI, on Tencent's spending spree.

The company's efforts are beginning to show. Revenue from its "others" segment - which includes payments and the cloud - more than quadrupled to 4.96 billion yuan in the quarter. Cloud services alone more than tripled after more enterprise customers signed on, particularly from the games, video and on-demand industries.

This year, Tencent signalled its willingness to spend by agreeing to acquire control of Clash of Clans studio Supercell Oy for US$8.6 billion (S$12 billion). 

It is said to have budgeted at least US$295 million this year and next to invest in movies in China and Hollywood. It is also buying the rights to anime, comics and novels to convert into movies and mobile games. The company has aspirations to create a Marvel-like movie empire as it competes with Alibaba and Baidu for viewers.

For now, Tencent's bottom line still depends on engaging a Chinese Internet population that is 710-million-strong, on selling in-game items and - increasingly - ads to those users. Its WeChat messaging app, which has become a dominant force in social media had 846 million monthly active users - more than twice Twitter's.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on November 17, 2016, with the headline 'Tencent reaps rewards of forays into other segments'. Print Edition | Subscribe