Tencent Sees Profit Increase of 61% Thanks to Games Business

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Asia's second-most valuable listed company said on Wednesday net profit for the quarter was 23.29 billion yuan ($3.66 billion), against an average estimate of 17.5 billion yuan from 11 analysts polled by Thomson Reuters.

However, those feats were dispelled by the technology giant. Revenue was 48% up on a year on year basis. But adjusted earnings-per-share, which strips out one-time items, came to 1.92 yuan, missing the 1.94 yuan average estimate. Operating margin increased to 42% from last year's first quarter of 39%.

The Chinese tech conglomerate, which owns the popular WeChat and QQ messaging and payment apps and a host of top mobile games, reported earnings that topped forecasts.

Tencent said mobile game revenue hit 21.7 billion yuan (about US$3.4 billion) during Q1 2018, up 68 percent year-on-year, while PC-based games saw sales of 14.1 billion yuan (over US$2.2 billion), roughly the same figures as Q1 2017. However, the mobile gaming market has exploded in recent years, especially in China, and Tencent has ridden the growth to the bank. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

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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. Tencent has exclusive release rights for PUBG in China but says the game is "yet to be monetized", implying future additional revenue stream from the title.

Tencent is banking next on the latest global phenomenon-"battle royale" games, in which a large group of players shoot each other until only one remains standing. The tournament-style game is popular amongst the e-sports, which is competitive video gaming. Tencent owns a stake in Epic Games, the developer of "Fortnite". Earlier this month it led a US$820 million round of funding in Shenzhen-based UBTECH Robotics, making it the world's most valuable AI start-up with an estimated valuation of US$5 billion.

China's largest social network and gaming company defied fears that outsized spending would hammer margins. That's still not cheap: But investors can now expect a return to the good old days of Tencent's shares heading ever higher.

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.