Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent has invested heavily in video in the past year.

The report shows that Tencent's total revenue in the first quarter was US$11.69 billion, rising 48% from the same period a year ago, driven by growth in mobile games, digital payment services, digital content subscriptions and social advertising.

In a statement accompanying the earnings report, Tencent Chairman and CEO Ma Huateng said, "In the first quarter of 2018, we launched the popular tactical tournament mobile games and enhanced the capabilities of widely-used services such as our Weixin Mini Programs, deepening engagement across our social, games and media platforms".

Jefferies analysts wrote in an accompanying note that Tencent's gross profit margin was higher than expected with its " strong mobile game rebound", but added a structural business mix change might continue to weigh on the firm's margins.

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The results were announced after the close of the Hong Kong stock market, where Tencent shares are traded. But the cost of revenue in that category doubled to 11.91 billion yuan, due to subsidies and promotional expenses.

Tencent's other retail partners include Carrefour, Walmart, Yonghui Superstores, Vipshop Holdings, Bubugao and JD.com, who are looking to leverage the internet giant's capabilities in mobile payments, customer acquisition and cloud services.

Revenue rose 48% to 73.5bn yuan, compared with analyst estimates for 70.8bn yuan. Tencent has the rights to run the game in China but said that it is "yet to be monetized", highlighting the potential future of the title.

As our chart illustrates, there's no need for Tencent to shy away from comparisons with the world's largest social networking company.

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Tencent said its profits increased 61 percent year-on-year to 23.3bn yuan (US$3.7bn) between January and March. Fortnite has been developed by video game developer Epic Games who Tencent has a stake in - the game is now unavailable in China, but there are plans to launch the game in the region in the coming months.

Smartphone game revenue soared while PC gaming revenue was flat as PC gaming users fell.

Tencent had warned in March that heavy spending could crimp profit, sending shares sharply lower. (Nasdaq: FB) as the world's fifth-most valuable company. Epic is a company in which Tencent has a large stake. The company's investment in original content helped drive paid video subscriptions up 85 percent on the year.

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