Tencent Beats Estimates, Signaling the Worst Is Behind It
Bloomberg
Published May 15, 2019 05:47
Updated May 15, 2019 07:13
Tencent Beats Estimates, Signaling the Worst Is Behind It
(Bloomberg) -- Tencent Holdings Ltd.'s (HK:0700) quarterly earnings beat estimates, boosted by gains on investments, giving shareholders much-needed assurance the Chinese gaming behemoth is bound for a revival.
Net income rose 17% to 27.21 billion yuan ($4 billion) in the three months ended March compared with the 19.4 billion-yuan average of analysts’ estimates. Revenue climbed 16%, about a third of the pace a year earlier and the slowest since its 2004 listing.
Tencent’s recovering from a brutal 2018. Last week, China’s largest social media company finally unveiled a viable entry in the Battle Royale genre, a red-hot arena it’s been shut out of since Beijing suspended game approvals last year. Now that regulators are again green-lighting titles, investors are counting on the worst being over as the company invests in video and news personalization to win back users from Bytedance Ltd.
“Missing consensus top-line estimates is not ideal, but the bright spot is growth came where it mattered -- in games, which is their most profitable segment,” said Vey-sern Ling, an analyst at Bloomberg Intelligence. “The 11% sequential jump in mobile game sales bodes well for the sustained recovery of the business over 2019, especially with the addition of new games.”
The profit was boosted by 11.1 billion yuan of gains, including adjustments for fair value of investee companies, it said.
Shares of Tencent rose 0.9% in Hong Kong before earnings were announced. The stock has gained 19% this year, compared with a 28% rise for New York-listed rival Alibaba (NYSE:BABA) Group Holding Ltd. Shares of Naspers Ltd., its biggest shareholder, rose more than 1% in Johannesburg.
Revenue from the Value Added Services unit, which includes online games and messaging, rose just 4.5% to 49 billion yuan. Online advertising revenue surged 25% to 13.4 billion yuan, but that was down from previous years as the economy slowed and the business gained scale, Tencent said.
WeChat had 1.112 billion monthly active users at the end of March, an increase of 6.9% from a year earlier, while the mobile version of QQ had 700.4 million users at the end of the quarter.
Tencent last week unveiled Game for Peace, a self-produced title in the same vein as global smash PlayerUnknown’s Battlegrounds. It concurrently pulled the plug on the mobile version of PUBG in China, a title it was never allowed to make money on during the months-long freeze.
Game for Peace pays tribute to China’s air force and sought out the country’s military recruitment arm for advice during development. Users can port or transfer their accounts easily, and in many cases the app automatically replaces PUBG on phones.
Get The App
Tencent garnered $14 million of in-app purchases within 72 hours of the title’s launch, according to research consultant Sensor Tower. Game for Peace comes as revenue from desktop games continues to decline and its tentpole Honour of Kings loses steam. The latter hack-and-slash game saw monthly active users fall 12% in March from the previous month, according to David Dai, a Hong Kong-based analyst at Bernstein.
“We expect Tencent’s fundamentals to improve in the second half, backed by the launch of new games and stronger monetization potential of shooting games,” Alicia Fu, an SWS Research analyst, said in a research report prior to earnings. “We expect to see a more diversified and sustainable recurring revenue model for Tencent’s mobile games.”
(Updates with division results starting in sixth paragraph.)
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.