Tencent beats on profit, misses on revenue
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Tencent beats on profit, misses on revenue

Last month, Chinese ecommerce giant Tencent, undoubtedly the country’s dominant force in both gaming and social, reported mostly positive earnings for its second quarter. Despite an outsized beat on profit expectations, Tencent’s shares didn’t manage to climb. The reason? What ails the company has never been internal – Tencent has been hampered by headwinds that still concern some investors.

Despite a year fraught with worries about regulation, trade wars, and slow-downs, Tencent’s share price has appreciated by 5% so far in 2019

Tencent Sept 4

Source: Yahoo Finance

Tencent reported revenues of 88.82 billion yuan ($12.92 billion) for the three months just gone. That failed to live up to analysts’ expectations for 93.42 yuan. However, the company saw an equally large difference between actual and expected profit – in the opposite direction. Tencent said that profit attributable to shareholders came in at 24.14 billion yuan – easily beating consensus estimates of 20.74 billion yuan ($2.64 billion). This is a clear indication that, despite the many regulatory and political woes that have hampered the company over the past year, Tencent remains a solid, and massively profitable, company which is continuing to see success even as the world around it soured. On a year for year basis, revenue rose by 21%, and profit rose by 35%.

The revenue miss (although an appreciation of 21% from the previous year can hardly be viewed as a failure) is a direct result of the Chinese government’s crackdown on video games. For much of the year, new approvals (in China, each game needs to be greenlit by regulators) were frozen. That hit Tencent harder than most, as it is the world’s largest video game company, and about 41% of its total revenue comes from online gaming. As Beijing’s attitude to gaming thaws (new approvals are no longer frozen), Tencent remains the company most likely to benefit from friendlier regulations.

The company saw double digit year on year growth across almost all of its segments, with cloud computing (up 37%) a standout performer, and advertising (up 16%) a relative laggard.

Disclosure

Dominion holds Tencent in its Global Trends Ecommerce Fund.


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