Tencent revenue tops estimates due to mobile games

Tencent Sees Profit Increase of 61% Thanks to Games Business

"Mobile game growth was very strong, as the first quarter is usually a good season when users spend more time on their devices during the holidays", said Benjamin Wu, a Shanghai-based analyst with Pacific Epoch. Company president Martin Lau Chi-ping had warned in March during its 2017 earnings call that this year Tencent would aggressively step up its investments in long- and short-form video content, digital payments, cloud services, artificial intelligence and smart retail, even though it could harm the company's profitability in the short term.

But the Chinese technology giant dispelled those fears. Revenue reached 73.52 billion yuan equal to $11.5 billion compared to expectations on Wall Street of 72.04 billion yuan. But adjusted earnings-per-share, which strips out one-time items, came to 1.92 yuan, missing the 1.94 yuan average estimate. Operating margin increased to 42% from last year's first quarter of 39%.

Tencent's WeChat messenger app now has 1.04 billion users.

Revenue breakdown: VAS business, 46.9B yuan (+34%); Online game, 28.8B yuan; Smartphone game, 21.7B yuan (+68%); Social networks, 18.1B (+47%); Online ad business, 10.7B (+55%); Social and others ad, 7.4B (+69%); Other businesses, 15.96B (+111%).

However, Tencent expects its PC game business to benefit from the roll-out of the PC versions of popular battle royale titles Fortnite and PlayerUnknown's Battlegrounds.

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

The overall online games business was boosted by two major games. Tencent has the rights to run the game in China but said that it is "yet to be monetized", highlighting the potential future of the title. 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. Epic is a company in which Tencent has a large stake. It is available as well on mobile. (Fortnite is due to launch in China imminently).

Tencent shares have been under pressure and are down around 17 percent from the record high seen in January.

Other earnings drivers for Tencent included a video subscription service that is similar to that of Netflix.

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