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Tencent advances revenues 48%, profit over 60% in Q1

17 May 2018

On Wednesday, Tencent reported its earnings for the first quarter that beat Wall Street expectations boosted by its hugely successful gaming business. In the following months, however, the company's shares came under pressure with increasing costs driving investor fear of lower margins.

Smartphone games revenue, the largest revenue contributor, was 21.7 billion yuan in the quarter.

Revenues totaled 73.53 billion yuan ($11.5 billion) versus a Thomson Reuters estimate of 71.04 billion yuan.

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As reported, operating margin climbed to 42 percent for the three months through March, from 39 percent a year earlier.

Net profit reached 23.28 billion yuan compared to an expected 17.5 billion yuan.

PC games, meanwhile, brought in roughly RMB 14.1 billion (~$2.2 billion) for the period, which Tencent notes is about the same as the year prior.

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PC games revenues were flat year-on-year, but analysts said that there were tough comparisons with the first quarter of 2017, and overall the games business was in good shape. Finally, revenues from the online advertising business increased by 55 percent, with social and other advertising revenues up 69 percent and media advertising revenues lifting 31 percent. In January Tencent partnered with e-commerce companies Suning Commerce Group, JD.com and Sunac China Holdings in a 34 billion yuan investment in Wanda Commercial Properties, a Chinese retail operator, forging one of the world's biggest alliances between the new economy and bricks-and-mortar businesses. Additionally, Tencent, an investor in Fornite developer Epic Games, has started the pre-registration process to bring Fortnite to China on PC. Fortnite has been developed by video game developer Epic Games who Tencent has a stake in - the game is now unavailable in China, but there are plans to launch the game in the region in the coming months. (Fortnite is due to launch in China imminently).

Tencent has invested heavily in video in the past year.

The game has gone viral and has over 40 million monthly active users across PC and consoles. 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.

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Tencent's other earnings drivers included its video subscription service, which is similar to Netflix. While WeChat has just passed the billion-user mark and is trailing the world's largest social network by more than a billion users, the company's financial results are almost on par with Facebook's.

Tencent advances revenues 48%, profit over 60% in Q1