Tencent Profit Beats Estimates as Mobile Games Lure Spenders

Tencent has released a report on its second quarter earning, showing a strong revenue growth in smartphone games. On a year-to-date basis, Tencent is also the best-performing stock on Hong Kong’s Hang Seng index, up 26.56%.

Hong Kong-listed stock of Tencent rose 5.08% in morning trade on Thursday, pushing its market capitalization ahead of Alibaba’s. Its online advertising business raked in 6.5 billion yuan ($980 million), fueled by a video streaming service whose National Basketball Association games attracted twice as many unique viewers during the latest season.

That was driven by a 52 percent leap in revenue, the fastest pace since the fourth quarter of 2012, to 35.7 billion yuan ($5.38 billion), trumping an average forecast of 33.2 billion yuan, based on a Thomson Reuters poll of 11 analysts.

The question is how long China’s largest social media service can keep spending to outpace the decelerating economy.

A rise of 34% was seen in the number of monthly active user accounts on Tencent’s social WeChat/Weixin platform.

Net income climbed 47% to a record 10.74-billion yuan ($1.6bn) in the three months ended June, the company said. Marrying that with its position as the dominant social network operator in China – via mobile messaging app WeChat and QQ – for both computers and mobile is paying off.

Chinese internet giant Tencent attributed its rising revenue to rapid growth in the use of its WeChat messenger service. Operating profit reached RMB14.329 billion (US$2.161 billion), a 43% year-on-year increase, the company’s quarter results show.

Tencent’s earnings received a warm response from analysts, who offered a round of target price increases, citing Tencent’s bet on dominating the online and mobile gaming space.

The company is also competing with Alibaba on digital entertainment.

The majority of Tencent’s revenue in the second quarter came from online gaming, with the division accounting for 17.124 billion yuan ($2.6 billion; £2.0 billion) of the company’s total revenues.