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Wednesday, November 15, 2017, 17:42
Tencent's profit beats as ad sales growth complements gaming
By Bloomberg
Wednesday, November 15, 2017, 17:42 By Bloomberg

This undated photo shows the logo of Tencent at its headquarters in Shenzhen city, South China's Guangdong province. (PHOTO / CHINA DAILY)

Tencent Holdings Ltd posted a better-than-expected 69 percent rise in quarterly profit, riding the success of games like Honour of Kings and a rapidly expanding advertising business.

Tencent reported net income of 18 billion yuan (US$2.7 billion) in the September quarter, compared with projections for 15.8 billion yuan

China’s largest social network operator reported net income of 18 billion yuan (US$2.7 billion) in the September quarter, compared with projections for 15.8 billion yuan. Revenue gained 61 percent to 65.2 billion yuan, versus the 61 billion yuan projected.

Tencent, the operator of the WeChat messaging and entertainment service that’s become near-ubiquitous across China, is pushing more and smarter advertising to its billion-plus users. The company, which this month acquired 12 percent of Snapchat owner Snap Inc, is also exploring new sources of growth in the cloud, financial services and movies and music. Shares in the company closed Wednesday 1.3 percent lower.

“Tencent still has a lot of potential for growth,” said Billy Leung, an analyst with Haitong International Securities Co in Hong Kong. “Advertising growth was strong, as it improved on using big data and AI for social ads.”

Investors bet earlier in 2017 that some of the company’s boldest investments would finally pan out, creating one of the world’s most richly valued companies in the process. The global leader in gaming tapped the spending power of some 200 million players for Honour of Kings and other blockbusters, helping mobile games revenue surpass that of desktops for the first time in the June quarter. A still-nascent advertising and finance business on WeChat has also expanded at a rapid clip, furthering its ambition of eventually becoming an ad powerhouse along the lines of Alibaba Group Holding Ltd or Facebook Inc.

A pedestrian walks past Tencent Holdings Ltd's new under construction headquarters (left) in Shenzhen, China, on Aug 22, 2016. (QILAI SHEN / BLOOMBERG)

For the longer term, it’s investing billions of dollars in artificial intelligence research, both to better target marketing as well as underpin future product categories. Tencent is said to have developed an autonomous driving system, among other areas it’s delving into. While it’s unclear what it plans with its chunk of Snap, the acquisition comes after a failed attempt to pick up Whatsapp and may mark a renewed effort to feel out markets beyond its home turf. Tencent has said the pair will share experiences and expertise in social networking.

On the deals front, the stellar debut of e-books unit China Literature Ltd may prompt more mega-spinoffs. It’s already said to be prepping its music arm for an IPO that could raise at least US$1 billion next year.

“Tencent has been investing in enhancing its technology on all business fronts,” Saiyi He, an analyst with Huatai Research in Hong Kong, wrote last week. It “should be able to effectively increase its market share in new media advertising.”

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