Published: Thu, May 17, 2018
Entertaiment | By Paul Elliott

Tencent's Record Profit Soothes Fears of Margins Squeeze

Tencent's Record Profit Soothes Fears of Margins Squeeze

Strong mobile gaming revenue and 7.585 billion yuan in investment gains helped buoy its gross profit margin to 50.4 percent, the first sequential quarterly increase since the second quarter of 2015.

The figures also revealed Tencent's expansionary activity, with the company holding net debt of RMB 14.5 billion as of March 31 due to investments and acquisitions in sectors such as e-commerce and automobiles.

Tencent's WeChat messenger app now has 1.04 billion users.

Tencent's first-quarter profit soared 61 per cent and revenue climbed 48 per cent.

He added that Tencent's WeChat ecosystem gives it a unique position to take advantage of an enlarged market. Analysts tracked by Thomson Reuters have a mean price target of 513.41 Hong Kong dollars, representing a more than 23 percent rise from Thursday's trading price.

Smartphone games revenue, the largest revenue contributor, was 21.7 billion yuan in the quarter. "The increase primarily reflected growth in revenues from digital content services such as live broadcast, video streaming subscriptions and our music service namely WeSing, as well as from in-game virtual item sales", Tencent said.

Tencent's Record Profit Soothes Fears of Margins Squeeze

The company, however, warned that delays in earning revenues from those games in China and heavy marketing expenses are expected to hit mobile games revenue in the short term.

Shares of Tencent, run by China's richest man, Ma Huateng (aka Pony Ma), rose more than 6% Wednesday thanks to the solid results.

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and newer areas such as finance to drive future growth.

The two segments contributed more than half of the company's total revenue of 73.5 billion yuan. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter. (Nasdaq: FB) as the world's fifth-most valuable company.

Options traders had prepared for a relief rebound, sending the cost of hedging against further losses to the lowest level of the year, while mainland investors also turned bullish - they were net buyers of the stock on Wednesday through a link with Hong Kong for the first time in five days.

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