Tencent Earnings Signal Slowing Growth in Online Games

Chinese internet titan Tencent Holdings plans to step up investments in strategic online-to-offline (O2O) partnerships to compete with aggressive rivals Alibaba Group and Baidu, following solid earnings growth in the quarter ended June 30.

Tencent Holdings Ltd. profit rose 25% to a better-than-expected 7.31 billion yuan ($1.1 billion) in the second quarter. Revenue from smartphone games, a priority for the company as the popularity of PC games declines, appeared to be hardest hit, growing at just 11 percent year-on-year compared to 82 percent year-over-year in the previous three months.

“We believe there is ample room for growth in mobile games in China”, said Chief Strategy Officer James Mitchell during a conference call with analysts Wednesday.

Based in the Chinese southern export hub of Shenzhen, Tencent operates China’s biggest messaging service WeChat, through which a variety of businesses including gaming, advertising and social networking have flourished in recent years. In the second quarter, Tencent’s online advertising revenue jumped 97% to 4.07 billion yuan.

“Games will continue to be the core business for Tencent, but investors are looking for the next growth engine”.

Analysts say there is plenty of room for Tencent’s WeChat mobile-messaging app, known for its clean user interface, to become a lucrative mobile-advertising platform.

Whaley TV sets, also 55 inches, will be sold starting two weeks from now on Alibaba’s Tmall website in addition to Whaley’s own website, using Alipay as the online payment channel. Moreover, a user is treated to a consortium of services that in most other countries would require standalone apps to be downloaded. In March, Mobile QQ had 603 million users while WeChat had 549 million users. Given that Messenger has attracted about 700 million MAUs, up from 600 million the previous quarter, the company could move to begin monetizing the service by as early as the end of 2015.