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Tencent’s smartphone gaming drives profit surge

Beijing - Tencent Holdings Ltd, China's biggest listed tech firm, posted its second quarter of year-on-year profit gain of more than 50 percent as smartphone gaming revenue continued to grow at a breakneck pace.

Net income rose 59 percent to 5.84 billion yuan (R10 billion) in the three months ended June compared with a year earlier, Tencent said on Wednesday.

Tencent headquarters at Nanshan Hi-Tech Industrial Park in the southern Chinese city of Shenzhen. Credit: REUTERS

That beats a mean estimate of 5.73 billion yuan based on a Thomson Reuters SmartEstimate poll of 10 analysts.

Tencent, with a market cap of more than $160 billion, has built its success on WeChat, known as Weixin in China.

Through the mobile messaging app, the arch-rival of Chinese e-commerce giant Alibaba Group Holding Ltd has been raking in money since the introduction of smartphone games in late 2013.

The Shenzhen-based company is also monetising games on its other large mobile social network, Mobile QQ.

“Revenue growth in the online game business mainly reflected contributions from smartphone games integrated with Mobile QQ and Weixin, as well as growth in PC client games,” Tencent said in its earnings release.

Revenue from online games made up 11.08 billion yuan, or 56 percent, of total revenue in the second quarter.

That was up 46 percent from a year earlier.

This primarily reflected the revenue contribution of about 3 billion yuan from smartphone games integrated with Mobile QQ and Weixin, up from the over 1.8 billion yuan reported in the first quarter.

Overall revenue climbed 37 percent to 19.75 billion yuan in the second quarter.

Tencent has spent more than $2 billion on building capabilities and services such as e-commerce, real estate and digital mapping into WeChat since the beginning of 2014.

It is looking to WeChat to become a digital Swiss Army knife that can be used for needs as diverse as chatting, paying for goods and getting deals on nearby restaurants.

In the first quarter, Tencent's net profit rose 60 percent to a record 6.46 billion yuan.

“Although the near-term driver will still mainly be the WeChat/QQ games monetisation ramp-ups, we see another year of robust online ad revenue growth in 2014 as well as for 2015 given the improved traction on the mobile news app and Tencent video,” Alicia Yap, an analyst for Barclays in Hong Kong, wrote in a research note.

In April-June, global monthly active users of Tencent's WeChat, China's biggest mobile app, rose 10.7 percent from the previous quarter to 438.2 million.

Tencent's shares have surged 34 percent year-to-date in Hong Kong trading.

They closed 0.08 percent lower on Wednesday, before the earnings announcement.

That compares with a 0.81 percent rise in the benchmark Hang Seng Index. - Reuters

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