Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent Sees Profit Increase of 61% Thanks to Games Business

The company, however, warned that delayed monetisation and heavy marketing expenses are expected to hit mobile games revenue in the short term.

While anxious investors had sold off more than US$90 billion of stock since January, Tencent posted a 61 percent jump in net income to 23.3 billion yuan (US$3.7 billion) in the March quarter, outstripping estimates by nearly a third. The Hong Kong-listed company reported an operating margin of 42 per cent, up 3 percentage points from the same period a year ago.

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth. The owner of the giant WeChat messaging platform opened its wallet to sustain growth as PC gaming slows, investing in cloud computing, entertainment and physical retail to lock horns with Alibaba Group Holding Ltd. Its "Honour of Kings" remains the highest grossing smartphone game in China's iOS Top Grossing Chart, while new tactical tournament games like Fortnite are gaining popularity globally, Lau said.

However, some investors believe that Tencent's stock price is being underestimated.

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The report shows that Tencent's total revenue in the first quarter was US$11.69 billion, rising 48% from the same period previous year, driven by growth in mobile games, digital payment services, digital content subscriptions and social advertising.

Tencent has been on a shopping spree, expanding into different sectors including e-commerce and automobiles.

Honour of Kings continues to be a core source of earnings.

Has Tencent lost its creative mojo? Not only is it increasing spent heavily on original content creation, it has invested in other streaming platforms. Meanwhile, Tencent's overall online advertising business achieved 55 per cent year-on-year growth in revenues. Earlier this month it led a US$820 million round of funding in Shenzhen-based UBTECH Robotics, making it the world's most valuable AI start-up with an estimated valuation of US$5 billion.

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Social networks revenues increased by 47% to RMB18.1 billion as WeChat user numbers passed 1.06 billion.

China's largest social network and gaming company defied fears that outsized spending would hammer profitability. In retail and e-commerce - traditionally viewed as rival Alibaba Group's turf - it has splashed out billions since 2017 on deals at home and overseas.

Tencent's other retail partners include Carrefour, Walmart, Yonghui Superstores, Vipshop Holdings, Bubugao and JD.com, who are looking to leverage the internet giant's capabilities in mobile payments, customer acquisition and cloud services.

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