Tencent finally gives its battle-weary investors some relief, Technology

Thu, Nov 15, 2018 – 10:17 AM

[HONG KONG] Tencent Holdings surged as much as 4.6 per cent after a resurgent advertising business and one-time whopping gains boosted earnings and bought it for an answer for its platinum core gaming business.

The WeChat-operator reported at 30 per cent jump in quarterly profit – well ahead of expectations for about 2 per cent – thanks to the start of Meituan Dianping. That helped its stock the most in about two weeks. The goal is to grow as fast as it gets in three years, as it continues to grow.

Tencent is unable to make money off global hits Fortnite and PlayerUnknown's Battlegrounds. That's seen the stock – the largest member of the MSCI Asia Pacific Index – shed more than US $ 230 billion in market value since January. While China is trying to fight gaming addiction and is reshuffling regulators, Tencent's uncertainty persists with its counting on its social network, advertising and belt-tightening to tide it over.

"People are just relieved that they did not perform even worse," said Li Yujie, an analyst at RHB Research Institute in Hong Kong. "But the shares can not hold up for the full day, because if you look beyond the headline figures, you can see their gaming business is under stress."

Tencent's earnings also a recent trend of disappointing results from China's technology companies as a slowdown in the economy dampens the outlook. Alibaba Group Holding Ltd. cut its outlook for annual revenue, while search leader Baidu Inc

President Martin Lau offered little insight on the gaming-approval situation on Wednesday's earnings call, saying "there's a lot of update" on that front. James Mitchell told analysts that it would be a problem for them, but the company said it would not be helpful.

The social media titan posted a 30 per cent surge in net income to 23.3 trillion yuan (s $ 4.62 trillion) for the September quarter. But that was after it recorded a windfall of 8.8 trillion yuan from one-time earnings.

"Advertising growth helped the company," said Benjamin Wu, a Shanghai-based analyst at Pacific Epoch. "Its gaming business was not great, it's not a big deal, it's a big season, that spells trouble for the full year."

Tencent still commands a powerful asset in WeChat: the ubiquitous messaging service, pay for services and hail rides. That's a massive population of not-for-profit services.

The company is also a key backer of Meituan, a food delivery and local services giant that held its initial public offering.

That sheer reach is helping power its marketing machine. Online advertising jumped 47 percent in the third quarter. In terms of its smaller but fast-growing divisions, cloud revenue more than 50 per cent.

The gaming business however still yields the biggest chunk of its revenue, though that proportion dropped steadily as Tencent leverages WeChat.

The Value Added Services division, which includes games, grew just 5 percent. Drilling deeper, revenue from smartphone games climbed just 7 percent, while sales from PC titles dropped 15 percent. In the meantime, Mitchell said, Tencent's keeping its pipeline, Mitchell said.

"Tencent's growth in 3Q smartphone seasonality," said Vey-Sern Ling and Tiffany Tam, analysts with Bloomberg Intelligence. "The 11 per cent sequential gain was driven by positive seasonality and new titles that received monetization approvals prior to a regulatory freeze."

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