Tencent shares rise after Q1 profit beats estimates

Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent Sees Profit Increase of 61% Thanks to Games Business

Warnings that Tencent, Asia's highest-valued tech company, might suffer a rare poor quarter of business proved unwarranted after the company smashed analyst expectations for its latest earnings thanks to its fast-growing mobile games business.

Tencent posted a 61 per cent jump in net profit on a 48 per cent rise in revenue for the first three months of the year, beating consensus estimates. "Media advertising revenues increased by 31% to RMB3.30 billion, primarily driven by revenue growth from Tencent Video due to an increase in video views, and new advertising formats within original productions".

It's estimated that Tencent has acquired stakes in almost 300 companies since 2013, about 50 on average a year.

The overall online games business was boosted by two major games.

"Analysts were expecting a drag on margins because of increasing contribution from cloud and payments, but it looks like Tencent was pretty good at controlling costs", said Julia Pan, a Shanghai-based analyst at UOB Kay Hian.

Strong mobile gaming revenue and 7.585 billion yuan in investment gains helped buoy its gross profit margin to 50.4 percent, the first sequential quarterly increase since the second quarter of 2015.

Tencent's shares have fluctuated sharply this year.

Still, shares of the company are still over 12 percent lower from the record high hit in January. Naspers Ltd., which as Tencent's top shareholder is often regarded as a proxy for the Chinese firm, rose more than 6 percent Wednesday.

But it adjusted earnings of 1.915 yuan, which is equal to 30 cents. At the open, Tencent shares were at 424 Hong Kong dollars, but pared some of those gains.

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

As our chart illustrates, there's no need for Tencent to shy away from comparisons with the world's largest social networking company. Tencent said that there was "double digit growth" in terms of daily active users for the game.

"We will continue to invest in improving our own products as well as enabling services for our partners", founder and Chief Executive Officer Ma Huateng said in a statement. The combined MAU of Weixin and WeChat amounted to 1.040 billion, up 10.9 percent year-on-year and from 989 million sequentially.

Fortnite is the other game that is driving a strong quarter.

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