Tencent beats estimates as WeChat, mobile games drive growth

Tencent growth WeChat

Tencent, which is listed in Hong Kong, was not yet active in over the counter trading before the open on the stock market today.

China's largest social network and gaming company defied fears that outsized spending would hammer margins. The market had also anxious that Tencent's spending plans for its videos, artificial intelligence and mobile payments could hurt its margins. The company owns the right to distribute "PlayerUnknown's Battlegrounds" and "Fortnite"-the two most popular titles in this genre-in China".

Shares of Tencent, run by China's richest man, Ma Huateng (aka Pony Ma), rose more than 6% Wednesday thanks to the solid results. The stock has fallen 16 percent since a record close on January 23.

The report shows that Tencent's total revenue in the first quarter was US$11.69 billion, rising 48% from the same period past year, driven by growth in mobile games, digital payment services, digital content subscriptions and social advertising.

But it adjusted earnings of 1.915 yuan, which is equal to 30 cents.

In addition, Tencent's largest shareholder, Naspers, reduced 2% of its holdings.

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

"It is a matter of a fact that the competition is actually very heavy, there have been a lot of subsidies provided in the market by our market peers, and as a result we have to follow suit", Tencent President Martin Lau said on an earnings call.

The company has, however, been leery of barraging its users with ads - on Wednesday, it declared that it had raised the maximum number of ads that customers see on WeChat Moments, a function similar to Facebook's newsfeed, to just two a day, from one previously. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. Another title - Honour of Kings - was the world's highest-grossing mobile game a year ago thanks to its China-based users and Tencent has been pushing it to worldwide audiences. The essay, written by veteran tech editor Pan Luan, claimed the company had "lost its dream" by becoming an investment company instead of continuing to develop great products in core areas such as search, e-commerce, information streaming, short video and cloud services. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter.

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

User numbers of Tencent's popular WeChat messenger app reached 1.04 billion. "Honour of Kings was a major contributor for mobile gaming revenue".

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