Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent did appear to beat forecasts for net profit.

The social media and gaming firm had posted on Wednesday better-than-expected net profit and gross profit margin for the first quarter, driven by the strong performance of its mobile gaming business and gains in its sprawling investment operations. While WeChat has just passed the billion-user mark and is trailing the world's largest social network by more than a billion users, the company's financial results are almost on par with Facebook's.

Tencent reported first-quarter earnings that topped analyst estimates, but investors are concerned about rising spending which could weigh on margins. But the cost of revenue in that category doubled to 11.91 billion yuan, due to subsidies and promotional expenses.

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He added that Tencent's WeChat ecosystem gives it a unique position to take advantage of an enlarged market. 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.

The company, however, warned that delays in earning revenues from those games in China and heavy marketing expenses are expected to hit mobile games revenue in the short term.

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Smartphone games revenue, the largest revenue contributor, was 21.7 billion yuan in the quarter. The owner of the giant WeChat messaging platform opened its wallet to sustain growth as PC gaming slows, investing in cloud computing, entertainment and physical retail to lock horns with Alibaba Group Holding Ltd. They surged to a record high in January and then again in March to become Asia's most valuable listed company, temporarily overtaking Facebook Inc.

Tencent shares closed 3.74% higher at HKD411.00.

Its gaming business drove revenues at Tencent during the quarter.

This helps explain why it's remained one of the world's most loved stocks by analysts, with none recommending selling for more than two years.

Looking forward, Tencent CEO Ma Huateng said the company will continue to invest in improving its own products and enabling services for its partners.

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