Chart: Tencent Sees Strong First-Quarter, WeChat Passes Milestone

Galtero Lara
May 16, 2018

Shares in Asia's second-most valuable public company were under pressure coming into the earnings report, with investors fearing potentially lower margins and increasing costs.

However, those feats were dispelled by the technology giant.

Revenue rose 48 percent to 73.53 billion yuan, beating the 70.93 billion yuan average estimate of 14 analysts, according to Thomson Reuters data.

Value added services businesses expanded their revenues by 34%, games by 26% and advertising by 55%, year-on-year, the company said. That represented a 61 percent year-on-year rise. Operating margin increased to 42% from last year's first quarter of 39%.

Tencent, owner of the giant WeChat messaging and social network platform, has been opening its wallet to sustain growth as gaming from desktop gaming slows.

The gaming business boosted Tencent's revenues in the quarter.

Its mobile game business reported a 68 per cent increase in revenue year-on-year to 21.7 billion yuan, driven by its blockbuster title Honour of Kings, which remained the highest-grossing smartphone game in China's iOS App Store, and a newly-released mobile game version of QQ Speed, which has a strong personal computer (PC) player base.

Revenue from PC games was flat compared to previous year, but analysts believe the comparison was tough with the 2017 first quarter, and overall its games business was strong.

Chart: Tencent Sees Strong First-Quarter, WeChat Passes Milestone
Chart: Tencent Sees Strong First-Quarter, WeChat Passes Milestone

"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. 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.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future.

"Fortnite" is the second game driving Tencent's strong quarter. The tournament-style game is popular amongst the e-sports, which is competitive video gaming.

In comparison, WhatsApp has 1.5bn monthly active users while 1.3bn people use Facebook Messenger. It is also on mobile too. (Fortnite is due to launch in China imminently). That's despite the company reporting that capital expenditure in the quarter was up 200 percent to 6.3 billion yuan.

Tencent's investors had become used to its shares going up and up, until recent months. Total video revenues were 75 percent higher.

Tencent also runs two messaging services.

For the first time, WeChat's monthly active users passed 1 billion.

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