Tencent blew past profit expectations

Tencent blew past profit expectations


Chinese software company Tencent reported a record profit in the second quarter. Analysts, including Goldman Sachs and Credit Suisse, contributed to increase their estimates for the share that has already risen 75% this year.

Tencent is one of China’s largest software companies and plays a dominant role in the daily life of many Chinese people with two popular apps. The first app is Honor of Kings, a game with 200 million players the most popular smartphone game in the world. The game is so addictive that Tencent introduced a play limit last month, which reduced the company’s stock market value by $15 billion. The second is WeChat, the Chinese version of Whatsapp, which has so many features that he became indispensable in everyday life.

Both apps contributed to record profit of 18.2 billion yuan, converted to €2.3 billion. That figure was higher 70% higher than a year earlier and more than analysts had counted. Sales grew by 59% to 56.6 billion yuan.

Analysts of Goldman Sachs were in a comment to talk primarily about revenue growth from gaming and online advertising. Although Tencent’s price has already skyrocketed in 2017, they increased their target by 7% to HK $369. At the Hong Kong stock market, which marks a close Thursday, Tencent’s share is still HK $332.

“We will be persistent but patient with our AI investment, because we believe it is a long-term initiative and we do not necessarily require our research to generate revenue directly in the short term,” said Tencent President Martin Lau.

Tencent has made a number of major acquisitions in the past year. Last summer, they secured control over the Finnish gaming development company Supercell in a transaction worth over 70 billion. The seller was Japanese Softbank.

“Tencents existing games and what’s under development continues to attract new users and revenue. We expect high growth potential within advertising and very high revenue growth from payment services,” Morgan Stanley writes in a report.

The revenue from mobile games grew rapidly, thanks to games like “Hon of Kings”. Advertising revenues were also higher than our expectations, says analyst Li Yujie at RHB Research Institute.

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Brayden Fortin is a American with numerous years of investment experience in the American Equity Market and in the Global Commodity Market. He has a B.Com degree from a well respected Canadian university and has experience working in the wealth management industry. He is interested in delving into numbers to analyze companies and markets. He won a couple of international strategy simulation competitions involving decision making through numerical analysis, and also scored in the top 50 on the Bloomberg Aptitude Test (out of nearly 200,000 test takers).