Published: Wed, May 16, 2018
Markets | By Otis Pena

Chinese online giant Tencent posts 61% rise in net profit

Chinese online giant Tencent posts 61% rise in net profit

According to Wednesday's release, the company flipped to net debt of 14.5 billion yuan as of March 31, compared to net cash of 16.3 billion yuan at the end of 2017, as a direct result of its investments and mergers and acquisitions activity. That represented a quarter-on-quarter rise of 12 per cent.

Margin improvement: Operating margin was 39%, up 42% on the year and 8% on the quarter.

User numbers of Tencent's popular WeChat messenger app reached 1.04 billion. Another title - Honour of Kings - was the world's highest-grossing mobile game previous year thanks to its China-based users and Tencent has been pushing it to worldwide audiences. Smartphone games revenues alone were up 68 percent year-on-year to 21.7 billion yuan, thanks to titles such as "Honour of Kings".

Tencent has historically done well in the games space with the PC its cash cow, but previous year its smartphone games business overtook that of PC based on revenue.

"The most important thing is the halo effect coming through in gaming", Neil Campling, co-head of the global thematic group at Mirabaud Securities, told CNBC by phone on Wednesday. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. The first is called "PlayerUnknown's Battlegrounds" or PUBG, which is a massive multiplayer online game. The company secured the rights to distribute both "battle royale" games in China and beyond and said it is just beginning to monetize them.

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"Fortnite" is the second game driving Tencent's strong quarter. "Fortnite" was developed by Epic Games, a company that Tencent has a large stake in. It is also on mobile too. Now not available in China, it is scheduled to be launched there during the next couple of months.

Shares of Tencent have come under pressure of late and are off by 17% from an all-time high from January. Earnings reported in the fourth quarter of 2017 underwhelmed investors and concerns were rising that spending increases could hit margins.

Other earnings drivers for Tencent included a video subscription service that is similar to that of Netflix.

Social and other advertising sales increased 69 per cent year-on-year as a result of more advertisers on WeChat Moments, the social media platform within its hugely popular messaging service.

For the first time, WeChat's monthly active users passed 1 billion.

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