WeChat and Mobile Games Drive Growth at Chinese Internet Giant Tencent

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The welcome screen for messaging app WeChat
The welcome screen for messaging app WeChat Credit: WeChat

Tencent Holdings' quarterly profit got a huge boost from the success of its megahit gaming title Honour of Kings and an assist from advertising revenues.

China's largest corporation reported a 70% surge in net income to a record $2.7 billion for the three months ended June. Sales rose 59% to $8.5 billion.

Tencent's market valuation is near record highs, fueled by expectations it will continue to tap the spending power of 200 million gamers on Honour of Kings and deliver more hits. The title's popularity helped sales from smartphone play overtake desktops for the first time. The still-nascent advertising and finance business on instant messaging app WeChat has also boosted investors' confidence it can compete with ad-leader Alibaba Group and sustain growth.

"Mobile games revenue grew fast, benefiting from titles like Honour of Kings," said Li Yujie, an analyst with RHB Research Institute in Hong Kong. "Advertising business also topped our expectations and grew at a healthy speed."

Online advertising sales rose 55% to $1.5 billion. Revenue from the value-added services division, which includes online games and messaging, climbed 43% to $5.5 billion. WeChat had 963 million monthly active users, up 19.5% from the previous year. But the mobile version of QQ, Tencent's other mainstay social network, had 3.9% fewer users at the end of the quarter.

"Tencent's existing games and pipeline continue to draw new gamers and revenue," Morgan Stanley analysts led by Hong Kong-based Grace Chen wrote in a report ahead of the results release. They also foresee "strong growth potential in performance advertising and surging revenue growth in the payments business."

Shares of Tencent have gained 70% this year, compared with an 80% rise for New York-listed Alibaba.

--Bloomberg News, with Ad Age staff

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