Tencent Sees Profit Increase of 61% Thanks to Games Business

On Wednesday, Tencent reported its earnings for the first quarter that beat Wall Street expectations boosted by its hugely successful gaming business.

Shares in the second most valuable Asian public company has come under heavy pressure leading up to the earnings report, as investors feared the potential for lower margins along with higher costs.

However, those feats were dispelled by the technology giant. Revenue reached 73.52 billion yuan equal to $11.5 billion compared to expectations on Wall Street of 72.04 billion yuan. Revenue was 48% up on a year on year basis.

Net profit reached 23.28 billion yuan compared to an expected 17.5 billion yuan. Profit was up 61% over the same period one year ago. Operating margin increased to 42% from last year’s first quarter of 39%.

Tencent has several different businesses including gaming and advertising, and owns WeChat, the largest messaging app in China.

Its gaming business drove revenues at Tencent during the quarter. Revenue from smartphone games alone was up more than 68% compared to the same quarter in 2017 to just over 21.7 billion yuan with the help of titles like Honour of Kings. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

Revenue from PC games was flat compared to last year, but analysts believe the comparison was tough with the 2017 first quarter, and overall its games business was strong.

The overall online games business was boosted by two major games. The first PlayersUnknown’s Battleground (PUBG), which is a huge multiplayer game online.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future.

Fortnite is the other game that is driving a strong quarter. The tournament-style game is popular amongst the e-sports, which is competitive video gaming. Epic Games developed Fortnite. Epic is a company in which Tencent has a large stake.

That game has gone viral with more than 40 million active users monthly across consoles and PCs. It is available as well on mobile. Currently not available in China, it is scheduled to be launched there during the next couple of months.

Shares of Tencent have come under pressure of late and are off by 17% from an all-time high from January.

Other earnings drivers for Tencent included a video subscription service that is similar to that of Netflix.