Reuters API
May 16, 2018
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Tencent profit surges above estimates on mobile gaming, investments

Reuters API
May 16, 2018

Chinese social media and gaming giant Tencent Holdings clocked a better-than-expected 61 percent jump in quarterly net profit and its first sequential gross margin rise in nearly three years, driven by a jump in mobile gaming revenue and investment gains.

Asia's second-most valuable listed company said on Wednesday net profit for the quarter was 23.29 billion yuan (2.7 billion pounds), against an average estimate of 17.5 billion yuan from 11 analysts polled by Thomson Reuters.

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.

Tencent has been actively investing in areas including gaming, entertainment, autonomous driving, and artificial intelligence. 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 abroad.

Smartphone games revenue, the largest revenue contributor, jumped 68 percent to 21.7 billion yuan in the quarter. Tencent's 'Honour of Kings' remains the highest grossing smartphone game in China's iOS Top Grossing Chart.

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

Tencent's PC games, which are more lucrative than smartphone games and was once its largest revenue contributor, saw a decline in active user numbers due to the continued shift to smartphones, with revenue from the segment flat at 14.1 billion yuan.

User numbers of its popular WeChat messenger app reached 1.04 billion, helping advertising revenue grow 55 pct to 10.69 billion yuan.

Its gross margin, a measure of efficiency, rose to 50.4 percent in the quarter from 47.4 percent in the previous quarter, marking its first sequential quarterly increase since the second quarter of 2015

Tencent booked net other gain of 7.585 billion yuan in the quarter, up from 3.19 billion yuan a year ago, mainly due to investment gains in areas including video sharing, news feed, online games and video content creation, it said.
Shares in Tencent have fluctuated sharply this year. They surged to a record high in January and then again in March to become Asia's most valuable list company, temporarily overtaking Facebook Inc as the world's fifth-most valuable company. Since late March, the shares have seen a sharp reversal, losing about $87 billion in value to leave Tencent with a market capitalisation of about $480 billion.

The drop was partly triggered by the company's warning in March that margins may be hurt by its plan to invest "aggressively" this year into areas including video content acquisition and payment subsidy.


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