Tencent shares rally after posting record Q1 profit

HONG KONG • Shares in Chinese Internet giant Tencent surged as much as 7 per cent yesterday after it announced profits jumped by two-thirds, thanks to income from its online games and advertising businesses.

The country's largest social network and gaming giant said first-quarter net profit surged 61 per cent to 23.3 billion yuan (S$5 billion) in the three months to March 31, outstripping forecasts.

Shares in the firm soared in early trading before ending up 3.74 per cent at HK$411.00.

Its total revenues rose 48 per cent to 73.5 billion yuan, with online game revenues up 26 per cent, mainly driven by smartphone offerings, including the popular Honour Of Kings and newly launched MU Awakening.

"We believe there is a long runway for continued growth of our social and other advertising," it said in a statement, adding that it had successfully reached more users aged 21 or below through "enriched chat features" and entertainment driven content.

The Shenzhen-based firm's strong results came after it invested in cloud computing, entertainment and physical retail, while also securing distribution rights in China for some of the most popular games in the world.

"Its margins were better than people expected," Shanghai-based analyst at UOB Kay Hian Julia Pan told Bloomberg News. "Analysts were expecting a drag on margins because of increasing contribution from cloud and payments, but it looks like Tencent was pretty good at controlling costs."

Tencent said users of its popular Weixin and WeChat platforms had opened 1.04 billion accounts, with mini games and scan-to-buy function becoming more popular.

WeChat is China's largest messaging service, through which a variety of businesses including gaming, advertising and social networking have flourished in recent years.

Tencent and rival Alibaba - two of the world's most valuable companies - are jockeying to build competing all-in-one online-services ecosystems that cater to China's hundreds of millions of digital-savvy consumers.

The Tencent-Alibaba tussle revolves around their competing online payment platforms, WeChat Pay and Alipay, and the fight to add a suite of online services - from bike rentals to food delivery and e-commerce - that can be paid for via digital wallets.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on May 18, 2018, with the headline 'Tencent shares rally after posting record Q1 profit'. Print Edition | Subscribe