Tencent reports Q1 beats, 61% profit growth

Tencent Sees Profit Increase of 61% Thanks to Games Business

Company president Martin Lau Chi-ping had warned in March during its 2017 earnings call that this year Tencent would aggressively step up its investments in long- and short-form video content, digital payments, cloud services, artificial intelligence and smart retail, even though it could harm the company's profitability in the short term. Revenue reached 73.52 billion yuan equal to $11.5 billion compared to expectations on Wall Street of 72.04 billion yuan. Operating margin increased to 42% from last year's first quarter of 39%.

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth.

Its mobile game business reported a 68 per cent increase in revenue year-on-year to 21.7 billion yuan, driven by its blockbuster title Honour of Kings, which remained the highest-grossing smartphone game in China's iOS App Store, and a newly-released mobile game version of QQ Speed, which has a strong personal computer (PC) player base. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

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. 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. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. The first PlayersUnknown's Battleground (PUBG), which is a huge multiplayer game online. The company secured the rights to distribute both "battle royale" games in China and beyond and said it is just beginning to monetize them.

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Fortnite is the other game that is driving a strong quarter. The tournament-style game is popular amongst the e-sports, which is competitive video gaming.

China's largest social network and gaming company defied fears that outsized spending would hammer margins. It is available as well on mobile. Now not available in China, it is scheduled to be launched there during the next couple of months.

Tencent's other earnings drivers included its video subscription service, which is similar to Netflix.

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