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Tencent Reports Record Profit

Posted on Monday, Jun 4th 2018

According to The New York Times, there are over 770 million internet users in China. Chinese Internet giant recently reported a record quarterly profit that beat analyst expectations driven by double-digit growth in its messaging platform WeChat and mobile gaming.

Tencent’s Financials

Tencent’s first quarter revenues grew 48% over the year to RMB 73.5 billion (~$11.7 billion) beating the analyst estimates of RMB 71.04 billion. Net profit grew 65% to RMB 23.9 billion (~$3.8 billion) beating analyst estimates of RMB 17.5 billion. Adjusted EPS was RMB 1.9 or $0.31. Operating margin grew to 42% from 39% a year ago.

By segment, revenues from the VAS business grew by 34% to RMB46.9 billion primarily driven by video and music streaming services. Online Games revenues grew by 26% to RMB28.8 billion driven mainly by revenue growth from existing online games such as Honour of Kings and newly launched titles such as MU Awakening and QQ Speed Mobile. Social networks revenues increased by 47% to RMB18.1 billion driven by growth in revenues from digital content services such as live broadcast, video streaming subscriptions, in-game virtual item sales, and its music service WeSing.

Online advertising business increased by 55% to RMB10.7 billion. Social and others advertising revenues grew by 69% to RMB7.4 billion, mainly due to an expanded advertiser base boosting advertising fill rates in Weixin Moments and higher CPC for its mobile advertising network. Media advertising revenues increased by 31% to RMB3.3 billion, primarily driven by an increase in video views and new advertising formats within original productions.

Revenues from its other businesses increased by 111% to RMB15.9 billion driven by its payment related and cloud services and the rapidly increasing offline commercial transaction volumes and consumer cash withdrawal fees.

Among operating metrics, the company reported combined monthly active users of over 1 billion for its two flagship social media platforms Weixin and WeChat, an increase of 10.9%. Monthly active user accounts for its instant messaging platform QQ declined 6.4% to 805.5 million of which smartphone users increased 2.4% to 694.1 million. Monthly active users of its social network platform Qzone declined 11% to 562.3 million, of which smartphone users were 550 million, a decrease of 9%. Fee-based VAS registered subscriptions were 147.1 million, an increase of 23.6%.

Tencent’s Plans for 2018

For 2018, Tencent plans to invest more aggressively to strengthen its long-term competitive positions in areas including online video, payment services, cloud services, AI technologies, and smart retail. Some of its initiatives include enhancing its social platforms, upgrading the content of existing games and adding innovative new titles, investing in long form and short form video content, cooperating with partners in developing Internet financial services, expanding its cloud infrastructure, and investing in AI technologies for applications such as advertisement targeting, recommendation algorithms, and healthcare.

Tencent battles with Alibaba on multiple fronts. While Alibaba dominates e-commerce, Tencent dominates games and social media. They are head to head in video streaming and cloud computing.

Tencent’s stock is trading around HKD 415 on the Hong Kong stock exchange with a 52-week high of HKD 476.6 and 52-week low of HKD 260.4.

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