Tencent beats expectations with strong Q1 profit

Tencent Sees Profit Increase of 61% Thanks to Games Business

Tencent profit jumps 61% to $3.7B as its mobile gaming business surges

The report shows that Tencent's total revenue in the first quarter was US$11.69 billion, rising 48% from the same period previous year, driven by growth in mobile games, digital payment services, digital content subscriptions and social advertising. Profit was up 61% over the same period one year ago.

Jefferies analysts wrote in an accompanying note that Tencent's gross profit margin was higher than expected with its " strong mobile game rebound", but added a structural business mix change might continue to weigh on the firm's margins. "Smartphone games revenues alone were up 68 percent year-on-year to 21.7 billion yuan, thanks to titles such as 'Honour of Kings'".

Tencent, owner of the giant WeChat messaging and social network platform, has been opening its wallet to sustain growth as gaming from desktop gaming slows. Tencent said that there was "double digit growth" in terms of daily active users for the game.

The broader online game business was driven by two major hit games. Last month, Tencent partnered with USA developer Epic Games to launch Fortnite in China. The first is called "PlayerUnknown's Battlegrounds" or PUBG, which is a massive multiplayer online game. It's a tournament-style game that is popular in e-sports, which is competitive video gaming. Tencent has big stakes in several notable Chinese companies, including e-commerce giant JD.com (JD). Now not available in China, it is scheduled to be launched there during the next couple of months. Since late March, the shares have seen a sharp reversal, losing about $87 billion in value to leave Tencent with a market capitalisation of about $480 billion. Earlier this month it led a US$820 million round of funding in Shenzhen-based UBTECH Robotics, making it the world's most valuable AI start-up with an estimated valuation of US$5 billion. That's still not cheap: But investors can now expect a return to the good old days of Tencent's shares heading ever higher.

In the fourth quarter of 2017, the operating margin actually fell.

Tencent reported a 111 percent rise in "other" revenue in the quarter to 15.96 billion yuan on growth in payment solutions and cloud services. The company's investment in original content helped drive paid video subscriptions up 85 percent on the year. WeChat had 1.04 billion monthly active users - crossing the billion mark for the first time.

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