Tencent exceeds expectations as profits rise
Chinese gaming and social media giant Tencent Holdings beat estimates to post a 37 percent rise in second-quarter net profit of 57.23 billion yuan (US$8.2 billion) thanks to higher demand for its video games and rising ad income.
Revenue picked up 29 percent to 114.88 billion yuan, beating market expectations of 112.76 billion yuan.
Revenue from online advertising increased by 13 percent to 18.55 billion yuan, of which social related advertising revenue grew by 27 percent to 15.3 billion yuan.
“We've seen user time spent on smartphone games increasing year on year but decreasing quarter on quarter due to seasonality and back-to-office behavior,” it said.
It also plans to add more virtual items with better production quality to drive monetization.
Business will also have a higher impetus to digitize when a large population embraces virtual services and hence cloud services will be well positioned to benefit from this shift.
The results come amid a US order last week of a ban on companies or persons in US jurisdiction from making Tencent-related transactions in the country in 45 days.
Further clarification on the US executive order is awaited but ads in the US are less than 1 percent of total advertising revenue, according to chief strategy officer James Mitchell.
Tencent shares posted a 10 percent intra-day plunge following the executive order but have since rebounded.
Revenue related to fintech and cloud businesses increased 30 percent to 29.9 billion yuan, reflecting revenue growth from commercial payments due to increased average daily transactions.
Continued strength in social and other advertising contributed to the year-on-year revenue growth of online advertising as e-retailers and online education spent heavily on promotional campaigns and summer courses.
Consumption recovery also boosted ad expenditure in categories such as automobiles and consumer electronics.
BoCom International said in a research note that summer promotional campaigns and new game launches would further enhance cash flow and restrictions in US and India had not yet affected gaming titles.