Tencent logs robust revenue growth as games, advertising sales shine

A Tencent sign is seen at the World Internet Conference (WIC) in Wuzhen

A Tencent sign is seen at the World Internet Conference (WIC) in Wuzhen, Zhejiang province, China, October 20, 2019. REUTERS/Aly Song/File Photo Acquire Licensing Rights

HONG KONG, Nov 15 (Reuters) – China’s Tencent Holdings (0700.HK) said third-quarter revenue climbed 10%, as its games business rebounded from a regulatory crackdown on the country’s tech sector and online advertising sales surged.

Sales for the world’s largest video game company and operator of the WeChat messaging platform came in at 154.6 billion yuan ($21.4 billion) – in line with market forecasts – for the three months to end September, its third straight quarter of revenue growth.

Last year was one of the toughest years for Chinese video game companies after a regulatory crackdown that began in 2021 led to an eight month-long freeze in licences for new games and more restrictions on playing time for minors. Tencent ended up posting an annual revenue decline for the first time.

The industry has rallied this year after regulators resumed granting game licences.

Tencent’s domestic games revenue for the quarter grew 5%, driven by titles such as the multi-player role-playing game “Lost Ark” and shooting game “Valorant”, developed by Riot Games – both of which Tencent launched for the first time in China in July.

In a call with analysts on Wednesday, Tencent highlighted nine games, including “Honor of Kings World”, “Valorant Mobile”, “Monster Hunter Mobile” and “Assassin’s Creed Mobile”, that are pending to be released.

“We have a substantial pipeline of new games in development including games that expand our own game IPs … and mobile games that utilise well-loved licensed IPs,” Martin Lau, the company’s president, said, referring to intellectual property.

In August, the Chinese video games sector achieved combined revenue of 29.2 billion yuan, the most in at least 20 months, according to CNG, a government-backed industry data firm.

Tencent stock closed up 4.8% prior to earnings in Hong Kong. It is up just 1.7% so far this year, beating a 8.6% drop in the broader market (.HSI). In the U.S., its shares rose 5.4% in over-the-counter trade early on Wednesday.

Regarding the impact of new U.S. chip export curbs on its business, Tencent said it has accumulated a large supply of Nvidia (NVDA.O) chips to sustain development of its artificial intelligence (AI) model in the short term, and that it will now also seek domestic supplies for AI chips.

ADVERTISING BOOST

Tencent’s online advertising business also reported a solid quarter, posting a 20% jump in revenue driven by strong demand for advertising in its video content.

Tencent said e-commerce companies have “become a much bigger contributor to (the company’s) ad revenue in recent periods”.

E-commerce companies tend to advertise in the second half of the year, explaining the ad sales surge Tencent experienced in the quarter.

Its financial technology business, its second-largest business unit, reported a 16% climb in sales following an improved performance from wealth management services and online transactions.

Net profit declined 9% to 36.1 billion yuan from a year earlier when the company had a strong quarter after divesting stakes in portfolio companies such as Sea.

Tencent also saw its overall gross margin continue to improve in the third quarter. It neared 50%, reaching levels last seen in 2018. The company attributed the improvement to its willingness to kill unprofitable businesses, a strategy it has made clear in recent quarters.

Pony Ma, chairman of Tencent, said the company had in the third quarter continued to “refocus away from less scalable activities” while emphasising high-margin revenue streams.

($1 = 7.2405 Chinese yuan)

Reporting by Josh Ye; Editing by Miyoung Kim and Christopher Cushing

Our Standards: The Thomson Reuters Trust Principles.

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