Tencent sets record after best revenue growth in 7 years

Bloomberg

Tencent Holdings Ltd. rose to a record high after posting accelerated sales growth and topping the most optimistic of analyst estimates.
The shares climbed 2.3 percent to a lifetime closing peak of HK$391.80 in Hong Kong, valuing the company at more than $477 billion. The owner of WeChat, the social network that is nearly ubiquitous in China, reported a 61 percent rise in third-quarter sales. Fuelled by advertising and hit game Honour of Kings, the growth was the fastest since 2010, when revenue was a mere one-fourteenth of its current level.
By getting WeChat onto almost a billion smartphones in China, Tencent has leveraged the instant message service into an entertainment and gaming platform that is driving advertising sales. Although the Shenzhen-based company remains largely absent overseas, it’s built a 12 percent stake in Snapchat-owner Snap Inc. and is exploring new sources of growth in the cloud, financial services, movies and music.
“We don’t see any signs of slow down or deterioration for next quarter or 2018,” said Naoshi Nema, an analyst at Cantor Fitzgerald LP in Hong Kong. “Mobile games growth is strong and the company is hitting pay dirt in areas of payments, cloud and on-demand video subscription.” Sales for the quarter were $9.8 billion, compared to analyst expectations for 61 billion yuan. Net income surged 69 percent to 18 billion yuan, also blowing past projections for 15.8 billion yuan.
WeChat had 980 million monthly active users, up almost 16 percent from the previous year and now sending 38 billion messages daily. But the mobile version of QQ, Tencent’s other mainstay social network, had 2.5 percent fewer users at the end of the quarter.
The success of Honour of Kings helped expand smartphone gaming revenue by 84 percent in the period. While the game was recently dethroned from the top of China’s iOS store, Tencent has a full pipeline of titles for 2018 that includes several from South Korean developers that were held back amid political tensions with China.
The company’s first two survival games, Glorious Mission and Crossfire, have each had more than 20 million pre-registrations with the Deserted Island title to launch this month.
“Games will be still be a key revenue contributor going forward,” said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch. Investors bet earlier in 2017 that some of the company’s boldest investments would finally pan out, adding about $230 billion of market value and creating one of the world’s most richly valued companies.
A still-nascent advertising and finance business on WeChat has also expanded at a rapid clip, furthering its ambition of eventually becoming an powerhouse along the lines of Alibaba Group Holding Ltd. or Facebook Inc. Online advertising sales grew 48 percent in the quarter.