Tencent's Mix of Games and WeChat Drives Best Growth in 7 Years

Tencent is reaping the rewards of marrying social media with mobile gaming, according to Bloomberg. The Chinese internet giant posted its fastest revenue growth in seven years and a record profit that surpassed estimates by 35 percent, thanks to its marquee hack-and-slash title Honour of Kings.

Investors bet 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. It tapped the spending power of some 200 million players of Honour of Kings and other phone hits, helping mobile games revenue surpass that of desktops for the first time. The still-nascent advertising and finance business on messaging app WeChat has also boosted confidence it can eventually become an ad powerhouse alongside leader  Alibaba.

Tencent’s shares have gained 70 percent this year, compared with an 80 percent rise for New York-listed Alibaba. Naspers, which owns about a third of Tencent, gained as much as 4.4 percent after the results, its biggest gain on an intraday basis in seven months. It reported results the same day news emerged it was investing 11 billion yuan in China’s second-largest wireless carrier alongside a host of other companies, in a series of strategic tie-ups that could bankroll the construction of a nationwide high-speed 5G network.

Tencent reported a 70 percent surge in net income to a record 18.2 billion yuan ($2.7 billion) for the three months ended June, exceeding the 13.5 billion-yuan average of estimates. A chunk of that however came from a jump in valuations of more than 5 billion yuan from its investments into startups in fields from financial technology to bike rentals, including unicorn Mobike. Sales rose 59 percent to 56.6 billion yuan, also topping projections.

Revenue from Value Added Services, which includes online games and messaging, climbed 43 percent to 36.8 billion yuan. Online advertising sales rose 55 percent to 10.1 billion yuan. WeChat had 963 million monthly active users, up 19.5 percent from the previous year. But the mobile version of QQ, Tencent’s other mainstay social network, had 3.9 percent fewer users at the end of the quarter.

Selling and marketing expenses rose 55 percent to 3.7 billion yuan, while general costs rose 54 percent, as Tencent shelled out for content and talent while sinking more money into artificial intelligence and technology research. The Netflix-like video-streaming division will “take quite some time“ to become profitable as content costs inflate, Lau said.