Tencent beats the Street and sends share price up
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Tencent beats the Street and sends share price up

Chinese Ecommerce giant Tencent, the country’s leading force in social networking and mobile gaming, reported first quarter earnings in may, sending its share price up. The company put its better-than-expected net profit and gross profit margin for the three months down to underlying strength in its mobile gaming business, and positive performance from its wide ranging investment operations.

Tencent’s share price jumped on the back of its latest results

graph 2505 tencent

SOURCE: Yahoo Finance

Tencent’s share price has come under pressure this year as questions over the viability of its investments in gaming, entertainment, retail, and more. Tencent views these investments as a key driver of growth, but there’s no doubt they eat money in the her-and-now. So far so good, however – and the company’s last quarterly earnings report shows that its investments are paying off.

Here’s how it went: Tencent’s profit shot up by an incredible 61% from the year-ago quarter. In the same timeframe, its revenue also increased substantially, by 48% - beating analysts’ expectations of a 42% rise. It also saw the first sequential rise in its gross margin, which came in at 50.4%, since mid-2015.

Tencent saw success across the board. It saw a 26% increase in revenue from online games, year over year, pushed higher by Fortnite and Player Unknown’s Battlegrounds (PUBG), as it is a major investor in the developers responsible for these blockbuster successes. Revenue from social networking rose by 47% from the year-ago quarter, as Wexin/WeChat users grew by 11% to more than a billion. Online advertising revenue increased by 55% and media advertising rose by 31%, both measured year-over-year.

In a note, Dominion’s Ecommerce Fund Manager Fred Baccanello summed up the quarterly results straightforwardly, noting that they point to “multiple strong ecosystems including a dominant position in social media that appears unassailable in China.”

Disclosure

Dominion holds Tencent in its Global Trends Ecommerce Fund.


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