HONG KONG (Reuters) – Tencent Holdings (0700.HK) said on Wednesday its third-quarter net profit rose 30 percent, beating estimates, as investment gains offset a weak performance in the Chinese company’s core gaming business.
FILE PHOTO: Tencent Holdings Chairman and CEO Pony Ma (C) visits the Tencent booth following the opening ceremony of the fifth World Internet Conference (WIC) in Wuzhen, Zhejiang province, China November 7, 2018. REUTERS/Stringer/File Photo
Net profit at China’s biggest gaming and social media group in the July-September quarter rose to 23.3 billion yuan, compared with an average estimate of 19.32 billion yuan, according to 15 analysts polled by to I/B/E/S data from Refinitiv.
Revenue rose 24 percent to 80.6 billion yuan ($11.59 billion), the slowest quarterly growth in more than three years, in-line with estimates.
China, the world’s biggest gaming market, has been imposing tougher rules on the industry, including a halt to new game approvals since March and calls to tackle young people’s gaming addictions.
This contributed to Tencent reporting its first quarterly profit fall in more than a decade in its April-June quarter. The company also cut its gaming marketing budget.
Tencent shares, which more than doubled in 2017, have dropped by about a third so far this year, wiping about $165 billion in value from the group’s market value.
In the third quarter, Tencent benefited mainly from a more-than-doubling in net gains from its investment activities, including the initial public offering of online food delivery to ticketing services company Meituan Dianping.
Douglas Morton, Head of Research, Asia at Northern Trust Capital Markets, said the result beat was a positive surprise even if not counting the investment income.
“What the real surprise is or the real comfort for the market will be that the mobile gaming data which beat expectations,” he said.
Tencent said smartphone games revenues grew 7 percent year-on-year and 11 percent quarter-on-quarter to 19.5 billion yuan, mainly due to contributions from new games. Despite the new approval freeze, Tencent already had 15 approvals and released 10 titles in the quarter, it said in the filing.
PC games revenue dropped 15 percent year-on-year due to continued user migration to mobile games and high base in the same quarter a year ago.
Advertising revenue, which accounts for 20 percent of the company’s total revenue, rose 47 percent, supported by a 61 percent jump in social and other advertising.
Tencent said its cloud services revenues more than doubled year-on-year in the quarter while the number of paying cloud customers grew at a triple-digit percentage rate year-on-year. Cloud revenues for the first three quarters of the year exceeded 6 billion yuan, it said.
Monthly active user number of WeChat, the most popular social network in China, rose incrementally to 1.08 billion.
($1 = 6.9536 Chinese yuan)
Reporting by Sijia Jiang; Editing by Muralikumar Anantharaman and Jane Merriman