Tencent enjoys strong Q1 on 34% online game growth

Updated 2017-05-18 09:30:38 Global Times

E-commerce gives broad boost to Internet sector

Tencent Holdings on Wednesday reported a higher-than-expected 55 percent year-on-year rise in first-quarter revenue to 49.6 billion yuan (.2 billion), buoyed by strong online games. Analysts had forecast a rise of 45 percent to 46.3 billion yuan, according to Bloomberg.

Profit surged 57 percent to 14.5 billion yuan.

"Tencent's earnings will maintain this kind of momentum in the near future unless Chinese authorities ban or restrict youngsters from playing online games," Li Yi, a senior research fellow at the Internet Research Center under the Shanghai Academy of Social Sciences, told the Global Times Wednesday.

The company said that the revenue and net profit gains mainly reflected another quarter of solid growth posted by the online games unit.

Revenues from online games rose 34 percent year-on-year to 22.8 billion yuan.

Liu Dingding, a Beijing-based independent IT expert, agreed that online games are a core business of Tencent, but he did not share Li's concerns.

"Tencent is diversifying its digital content services and expanding its online advertising business via WeChat," signifying a reduction in reliance on online games, Liu told the Global Times Wednesday.

On Tuesday, Tencent's digital music distribution platform Tencent Music Entertainment Group (TME) signed a licensing agreement with US record company Universal Music Group (UMG), allowing the former to distribute music from UMG in China.

Liu noted that the technology giant has forged an entertainment empire to capitalize on domestic consumers' new willingness to pay for high-quality online content.

In China, TME has more than 15 million paying subscribers, according to a joint press release issued on Tuesday.

Online advertising posted a robust expansion of 47 percent to 6.9 billion yuan.

The combined monthly active users of Tencent's popular social media Weixin in China and WeChat abroad totaled 937.8 million as of March 31, up 23 percent year-on-year.

The first-quarter financial report was released after markets closed. Shares of Tencent on the Hong Kong Exchanges and Clearing closed up 0.39 percent at HK9.8 () on Wednesday.

Behind Tencent's strong earnings is the fact that online spending in the world's second-largest economy is rising despite slower economic growth, said experts.

China's economy is in transition from a manufacturing-focused type to a services-driven one. "This shift has helped companies like Tencent and Alibaba become the most valuable companies in China," Li told the Global Times Wednesday.

Online sales of services jumped 55.9 percent in the first four months of this year while those of goods rose 25.9 percent, outpacing the 10.2 percent growth in overall consumption, data from the National Bureau of Statistics showed.

Alibaba Group Holding is scheduled to release earnings for the quarter ended March 31 on Thursday. Bloomberg said that analysts' consensus estimate is for sales to have risen 48 percent to 35.9 billion yuan.

On May 8, China's second-largest online retailer JD.com Inc logged its first profit since being listed on the NASDAQ in 2014. First-quarter net profit hit 1.4 billion yuan, compared with a year-earlier loss of 200 million yuan.

The boom of online services may pose some setbacks to the development of some physical businesses, said Li. "For instance, Tencent's rich online video portfolio may decrease cinema attendance. Alibaba's increasingly regulated online shopping marketplaces will put pressure on brick-and-mortar stores."

Liu noted that there are also other traditional businesses such as logistics that have gained from rising online services.

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