(Yicai Global) May 17 -- Tencent Holdings Ltd.'s latest earnings report confounded the expectations of investors and analysts who were concerned that the internet juggernaut's momentum could slow after stock sales by major shareholders and senior executives, a drop in online games revenue in the fourth quarter and misgivings over whether the Chinese company still has dreams.
Tencent's shares jumped 3.74 percent today after China's largest social network and gaming company topped market expectations with a record first-quarter profit. Yesterday, the Shenzhen-based company reported a 61 percent spike in net profit to CNY23.3 billion (USD3.7 billion) in the January to March period, from a year earlier, versus an estimate of CNY17.5 billion. Revenue increased 48 percent to CNY73.5 billion, outstripping a Thomson Reuters estimate of CNY71 billion.
Tencent also invested as much as CNY54 billion abroad in the first quarter -- over twice its net profit. This can only add fuel the debate over whether the Shenzhen-based colossus remains a technology and culture conglomerate as it claims, or whether it has indeed morphed into an investment company.
Tencent divides its business into several segments: online games, digital content, online advertising and other business, which mainly includes payment solutions, and financial and cloud services. This latter segment maintained the fastest income growth in the quarter with a more than twofold annual increase.
Tencent published the growth figure for its cloud services for the first time, saying it had also notched up a more than twofold annual increase thanks to the development of its gaming, video, e-commerce and online-to-offline businesses. The firm supplies services worldwide through its new international data centers in Hong Kong, the US and India, it said in March last year.
The company will enhance its core competence in game and video cloud services and further flex its muscles in finance, market and retail services. The firm will extend its cloud infrastructure to the world to woo overseas customers and markets for its gaming segment.
An article titled 'Tencent Has No Dream' that recently went viral chided the company for losing its innovation capability after transforming into an investment entity and becoming an investment-driven company.
Criticism of Tencent for turning outbound investment into its main source of business growth is not entirely without foundation, as its earnings report shows. The firm's spending overseas hit CNY54 billion.
It snapped up 9 percent of the equity of a group-buying company for CNY6.5 billion, upped its 28 percent overseas-market-issued shareholding in a film company to the tune of CNY3.3 billion, cut itself a 12-percent slice in an online game company for CNY3 billion, and spent CNY8.35 billion to palm other affiliated companies' shares.
The company took a 35-percent share in a live-streaming platform for CNY2.92 billion, boosted its two percent stake in a short video company by CNY2.54 billion, and plunked CNY14 billion into games, entertainment, technologies and other internet-related service assets.
It scooped up five percent of a retail business for CNY4.22 billion, three percent of a social media company for CNY3.7 billion, and five percent of an online game company for CNY2.9 billion, while further raising its investment in a streaming media company by CNY2.5 billion, the statement said.
The firm's online gaming business also revived, with the aggregate amounts of its active WeChat and QQ accounts steadily rising. After the first monthly decrease since the second quarter of 2015 in last year's fourth period, Tencent's gaming business bounced back in the first quarter.
Tencent's turnover from smartphone games hit CNY21.7 billion in the period, up 68 percent on an annual basis, and 28 percent month on month. Turnover from personal computer games touched CNY14.1 billion, the same as in last year's first quarter, and up 10 percent per month.
Its mobile games King of Glory and QQ Speed Car Mobile drove growth in Tencent's game turnover. It has released over 500 mini-games since it offered third-party developers access to its mini-game platform starting at the end of March, it said.
Monthly active accounts of the company's mobile messaging app WeChat totaled 1 billion, up 11 percent per year at the end of the first quarter, while the monthly active accounts of its social media platform QQ were 806 million, down 6.4 percent annually. The combined number of monthly active accounts of these two apps hit 1.85 billion.
The tally of the company's monthly active accounts rose by 76 million, or 4 percent in the quarter over the figures for the end of last year.
Whew. Tencent is clearly not content to rest on its laurels.
Editor: Ben Armour