Tencent Sees Profit Increase of 61% Thanks to Games Business

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According to Wednesday's release, the company flipped to net debt of 14.5 billion yuan as of March 31, compared to net cash of 16.3 billion yuan at the end of 2017, as a direct result of its investments and mergers and acquisitions activity. That was buoyed by a one-time gain of nearly 7.6 billion yuan as the value of investments in arenas from video streaming to news content rose.

In a statement accompanying the earnings report, Tencent Chairman and CEO Ma Huateng said, "In the first quarter of 2018, we launched the popular tactical tournament mobile games and enhanced the capabilities of widely-used services such as our Weixin Mini Programs, deepening engagement across our social, games and media platforms".

China's largest social network and gaming company defied fears that outsized spending would hammer margins.

The company is investing in cloud computing, online entertainment and physical retail stores as it locks horns with Alibaba Group. That compares to the 17.4bn-yuan average of estimates compiled by Bloomberg.

Smartphone games revenue, the largest revenue contributor, jumped 68 per cent to 21.7 billion yuan in the quarter.

Shares of Tencent were largely unchanged in Hong Kong before earnings were announced. Asia's largest company by market capitalization, Tencent reported $14 billion debt at the end of March, compared with $16 billion of cash at the same time a year ago. Shares in Naspers Ltd., which as Tencent's top shareholder is often regarded as a proxy for the Chinese firm, rose 2.6 percent in early Wednesday trade.

In the video content sector, Tencent poured a total of $1.1 billion into two rivals in a 24-hour period, investing US$632 million and US$461.6 million respectively in Chinese game-streaming platforms Douyu and Huya in March. Developed by Tencent's own studio, the mobile title resembles the world's most popular desktop title League of Legends, whose developer was acquired by Tencent in 2015. "The increase primarily reflected growth in revenues from digital content services such as live broadcast, video streaming subscriptions and our music service namely WeSing, as well as from in-game virtual item sales", Tencent said.

The company, however, warned that delays in earning revenues from those games in China and heavy marketing expenses are expected to hit mobile games revenue in the short term. It has developed a mobile version of the former that is available globally, while it owns almost half of Epic Games, the developer of Fortnite.

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