Tencent Profits Soar 50% on Revenues from Online Games, Ads

Chinese Internet Giant Finds More Ways to Make Money From Messaging Services Like WeChat

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Fashion show content from Burberry on the WeChat messaging app
Fashion show content from Burberry on the WeChat messaging app

Chinese internet giant Tencent Holdings Ltd. posted a 50% leap in quarterly profit as it reaps higher revenue from more than 1 billion users of its WeChat and QQ messaging services.

Net income climbed to $941 million in the three months that ended Dec. 31, up 50% from the year-earlier period, the Shenzhen, China-based company said in a statement Wednesday.

Billionaire Chairman Ma Huateng is finding ways to make money from instant messaging through advertising and payment services as Tencent steers shoppers to e-commerce partner JD.com and expands its game lineup to compete with Alibaba Group Holding Ltd. The company is trying to reach more users with deals to stream content such as "Game of Thrones" and to make WeChat among the first applications integrated with Apple's smartwatch.

"We expect Tencent earnings to improve this year as they introduce advertising to WeChat," said Ricky Lai, a Hong Kong-based analyst with Guotai Junan International Holdings. "They will increase monetization from the platform by e-commerce, online games and advertising."

The company's stock has gained 21% this year, compared with a 2.2% increase in the benchmark Hong Kong Hang Seng Index.

WeChat, QQ
Revenue rose 24% to $3.37 billion. Tencent's sales were lifted by new mobile games, increased user spending and expanded advertising efforts.

Fourth-quarter sales from the Value Added Service unit, which includes online games and messaging, rose 44% to $2.74 billion. Online advertising surged 75% to $422 million, while e-commerce transactions dropped 87% after Tencent put its shopping assets into a venture with JD.com.

Tencent is trying to cash in on the huge user base of QQ and WeChat, known as Weixin in China, with an open-platform strategy that lets third-party developers, marketing agencies and merchants such as Lenovo use the platforms to promote goods and services.

QQ has more than 815 million monthly active users, and WeChat has 500 million, Tencent said. The two instant-messaging applications and Tencent's app store attracted 2.4 million third-party programs, Chief Operating Officer Mark Ren said in October.

The company also is working to link the apps with Internet-connected ovens, air conditioners and other "smart home" appliances. Already, the company's QQ Wallet and Weixin Payment have integrated more than 100 million bank cards, President Martin Lau said.

Tencent announced in December it would distribute Sony Music Entertainment songs from artists including Beyonce Knowles to capture a greater share of China's online music business. The company also signed deals with Time Warner's HBO, Warner Music Group, Fox International Channels and YG Entertainment to bring more international content to the world's most populous nation.

In January, Tencent extended its deal to be the exclusive digital partner for the National Basketball Association in China for five more years.

Tencent acquired 19.9% of Craigslist-like 58.com in June, after buying a similarly-sized stake in China's Dianping.com, a Yelp-like site that provides user-generated food reviews. It offloaded its e-commerce websites to JD.com after taking a 15% stake in the Alibaba rival in March 2014.

--Bloomberg News, with Ad Age staff--

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