Tencent profit surges on ads, Meituan gain as games struggle

Tencent Holdings posted earnings that surpassed all analyst estimates as one-time gains and advertising demand limited the impact associated with a government clampdown on its lucrative games business.

Net income surged 30 % to 23.3 billion yuan ($3.4 billion) with the September quarter, compared with the 18.4 billion yuan average of estimates. With revenue growing for the slowest pace in four years, the result was boosted by one-time gains more than 8.7 billion yuan, including its investment in Meituan Dianping.

Tencent’s earnings bucked a recently available trend of disappointing comes from China’s technology companies as a slowdown in the economy dampens the outlook. Alibaba Group Holding Ltd. cut its outlook for annual revenue, while search leader Baidu also predicted sales below estimates. Tencent may be hammered by concerns about games who have destroyed in excess of $240 billion of market value since a January peak.

The government has effectively frozen new licenses for games, so this means Tencent’s been unable to earn a living off its newest and biggest titles — including global hits Fortnite and PlayerUnknown’s Battlegrounds. While China is hoping to combat gaming addiction as well as being reshuffling regulators, uncertainty persists for gaming companies. Tencent is thought being responding with belt-tightening simply because it cuts marketing budgets that can help tide it across the drought.

“Advertising growth helped the business in revenue this quarter,” said Benjamin Wu, a Shanghai-based analyst at Pacific Epoch. “Its gaming business wasn’t great, laptop gaming revenue is dropping if the third quarter should be a powerful season, that spells trouble for the entire year.”

Tencent still commands a robust asset in WeChat: the ubiquitous messaging service made use of by regarding green billion individuals to shop, pay for services and hail rides. What a massive population of longer-term consumers besides for games and ads but additionally fledgling services from video to financial services.

Online advertising jumped 47% inside third quarter whilst the Value Added Services business, which include games, grew just 5%. Revenue from smartphone games climbed just 7%, whilst sales from PC titles dropped 15%.

“The huge mismatch between Tencent’s mobile traffic dominance and ad dollar business talks to its long-term ad monetization potential,” Jefferies analysts led by Karen Chan wrote ahead of the earnings release.

Tencent may be the biggest backer of Meituan, a food delivery and native services giant that held its dpo in September.

Shares of Tencent fell 0.8% Wednesday ahead of the earnings were released. The stock has slumped 33% in 2010.

“Tencent’s growth in 3Q smartphone game sales could reverse due to China’s uncertain regulatory environment and frequently negative 4Q seasonality,” said Vey-Sern Ling and Tiffany Tam, analysts with Bloomberg Intelligence. “The 12 % sequential gain was driven by positive seasonality and new titles that received monetization approvals prior to a regulatory freeze.”

? 2018 Bloomberg L.P

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