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Tencent Revenue Growth Strong, But Adjusted Earnings Miss

16 May 2018

China's largest social network operator reported net income of 23.29 billion yuan (US$3.65 billion) in the quarter ended March 31, beating average market expectations by about 30 per cent. Revenue reached 73.53 billion yuan, up 48 per cent from the same time past year, driven by online advertising, online games and messaging services. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. Revenue from smartphone games alone was up more than 68% compared to the same quarter in 2017 to just over 21.7 billion yuan with the help of titles like Honour of Kings. PC games remained flat with 14.1 billion yuan in revenue compared to same period a year ago.

The gaming business boosted Tencent's revenues in the quarter.

"We expect Tencent to consolidate both the PC and mobile games markets", Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co., said in a report. The mobile version of Fornite was an instant hit in the USA market after its March launch, becoming the highest-grossing iOS game there.

Tencent's investors had become used to its shares going up and up, until recent months. Tencent has big stakes in several notable Chinese companies, including e-commerce giant JD.com (JD).

Tencent has been on a shopping spree, expanding into different sectors including e-commerce and automobiles.

Tencent posted a 61 percent jump in net income to 23.3 billion yuan ($3.7 billion) in the three months ended March, outstripping the 17.4 billion-yuan average projection. Now unavailable in China, it will be launched in the country within the next few months.

Has Tencent lost its creative mojo?

Tencent's WeChat messenger app now has 1.04 billion users. That came after Tencent's rare miss in revenue growth the quarter before, which had prompted worries about a slowdown in games sales, its largest profit driver. The first is called "PlayerUnknown's Battlegrounds" or PUBG, which is a massive multiplayer online game.

The internet giant has also plunged into offline retail sectors. That's despite the company reporting that capital expenditure in the quarter was up 200 percent to 6.3 billion yuan.

Tencent is banking next on the latest global phenomenon-"battle royale" games, in which a large group of players shoot each other until only one remains standing.

Tencent Revenue Growth Strong, But Adjusted Earnings Miss