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Tencent Holdings posts 35% rise in net profit thanks to growth in gaming business

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Tencent Holdings posted a better-than-expected 35 percent rise in quarterly net profit on Wednesday as growth in its gaming business resumed after a long regulatory freeze in China and its fintech operations saw revenues rise sharply.

However, the world’s largest gaming firm by revenue also reported a slowdown in online advertising revenue growth and said business conditions were likely to remain tough amid a slowing Chinese economy and Sino-US trade tensions.

“We expect the negative impact from the current business environment will persist in the second half of 2019,” it said.

Tencent made CNY 24.14 billion ($3.44 billion) in net profit for the second quarter ended June, versus an average estimate of CNY 20.74 billion from 13 analysts polled by Refinitiv.

WeChat mascots are displayed inside Tencent office at TIT Creativity Industry Zone in Guangzhou, China May 9, 2017. Picture taken May 9, 2017. REUTERS/Bobby Yip – RC14AB8D0490

Smartphone gaming revenue rose 26 percent to CNY 22.2 billion, helped by major titles including Honour of Kings and Perfect World Mobile as well as new releases.

Tencent said it launched 10 new games in the quarter, versus only one in the previous quarter.

In 2018, Tencent turned in its slowest annual profit growth in 13 years due to a suspension in approvals for new games.

Approvals restarted in December, with Tencent receiving permission to launch Perfect World Mobile in the January-March quarter.

“FinTech and Business Services” – a new revenue category set up this year that includes payment and cloud services – generated CNY 22.9 billion, up 37 percent on comparable business last year, helped by rapid growth in commercial payment volume.

Tencent offers commercial payments service to a large number of merchants and consumers on its social media platform WeChat, which had 1.14 billion users at the end of June.

Tencent also said its wealth management platform, LiCaiTong, had aggregated customer assets of over CNY 800 billion at the end of the quarter as more users kept their money within its payment system.

“Amid the evolving macro-economic and competitive challenges, we continue to invest in enhancing our platforms, services and technologies, for better supporting our users and enterprise customers,” Tencent said in a filing.

From entertainment to enterprise

The social media and gaming giant is restructuring in an attempt to find new revenue sources as its consumer business comes under pressure from slowing Chinese economic growth and the Sino-US trade war.

Online advertising revenue grew at 16 percent in the quarter, down from 25 percent in January-March, which Tencent said was due to a “challenging macro environment and increased supply of short video advertising inventories across the industry”.

Media advertising revenues dropped 7 percent year-on-year, which Tencent blamed on the absence of soccer World Cup this year and “unexpected delays to airing certain top-tier drama series”.

In May, amid US-China political tensions, Tencent’s video-streaming platform Tencent Video surprised fans when it announced last minute that it would not broadcast the season finale of Game of Thrones as originally scheduled.

Tencent said revenue growth at its cloud services business remained robust and it gained key contracts such as PICC, Bank of Communications, and public services such as healthcare and transportation in various cities.

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