Tencent profits from smartphone gaming

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br tencent Bloomberg The icons for Tencent's messaging application WeChat, left, and social network QQ. The success of the apps has helped boost the company's market value to about $161 billion, making it the most valuable internet company in Asia. Photo: Bloomberg

Paul Carsten Beijing

Tencent Holdings, China’s biggest listed tech firm, posted its second quarter of annual profit gain of more than 50 percent yesterday as smartphone gaming revenue continued to grow at a breakneck pace.

Net income rose 59 percent to 5.84 billion yuan (R10bn) in the quarter to June compared with a year earlier, Tencent said. That beat a mean estimate of 5.73 billion yuan in a poll of 10 analysts.

Tencent, with a market cap of more than $160bn (R1.7 trillion), has built its success on WeChat. Through the mobile messaging app, the arch-rival of Chinese e-commerce giant Alibaba Group has been raking in money since the introduction of smartphone games late last year.

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,” it said in its earnings release.

Revenue from online games came to 11.08 billion yuan, or 56 percent of total revenue, in the second quarter, 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 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 $2bn on building capabilities and services such as e-commerce, property 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 at nearby restaurants.

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

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

In the three months to June, global monthly active users of 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 in the year to date in Hong Kong trading. They closed 0.08 percent lower yesterday, before the earnings announcement. – Reuters

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