Second-quarter profits at Tencent, whose products range from instant messaging and social networks to online games, exceeded expectations, as the Chinese internet giant continued to expand its mobile gaming business.
The Shenzhen-based technology heavyweight, which recently led a consortium that bought an 84 per cent stake in Clash of Clans-maker Supercell for $8.6bn, made a net profit of Rmb10.7bn ($1.6bn) in the three months to June 30, exceeding forecasts of Rmb9.5bn and was a 47 per cent increase on the same period a year ago. Revenue rose 52 per cent year on year to Rmb35.7bn.
Like its Chinese rival Alibaba, which this month posted better than expected second-quarter figures, Tencent has been increasing the proportion of revenues it generates from smartphones.
During the second quarter, it made Rmb9.6bn in revenue from smartphone games, a 114 per cent increase on the same period a year earlier. Overall, online game revenues rose 32 per cent year on year to Rmb17.1bn.
The vast majority of gaming revenues — whether on smartphones or PCs — comes from in-game add-ons, where users can pay for virtual perks, such as new weapons in combat games.
Aside from the trend towards mobile gaming, a shift towards mobile advertising has helped push up profits, according to Elinor Leung, analyst at CLSA, a Hong Kong-based investment group.
Using a model similar to Facebook, the company recently began to include ads in public areas of its popular WeChat messaging app, where they appear among posts from individual users and official public accounts.
WeChat alone had 806m active monthly users in the second quarter, representing 34 per cent year-on-year growth.
Advertising revenues on such platforms increased by 80 per cent in the quarter to Rmb3.7m for the quarter — only a fraction of its gaming revenue.
Online content such as music and films is another area that the company has set its sights on as a future means of monetising its large and active user base.
In July, Tencent bought leading music-streaming company China Music Corporation and combined it with QQ Music to create one of China’s largest stores of online music content.
Revenues from mobile payment services were not included in the results breakdown.
Tencent recently took a step back in a market share battle with leading mobile payments provider Alibaba by cutting subsidies for its WeChat Pay service.
Ma Huateng, Tencent’s chairman, pointed to the company’s user base and distribution capability as well as the recent purchase of Supercell as evidence for continued growth.
However, the companies biggest strategic investment in Supercell is “unlikely to bring any material returns in the near term”, Ms Leung said.
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