Tencent results blow past forecasts on strength in games, WeChat

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HONG KONG (Reuters) – Tencent Holdings Ltd (0700.HK), China’s biggest gaming and social media firm by revenue, trumped forecasts to post its best-ever quarterly results, driven by higher income from smartphone games, payments and online advertising.

The most valuable firm listed in Asia – which is riding a wave of success stemming from the popularity of its social-network based mobile game Honour of Kings – said its profit came in at 18.23 billion yuan ($2.72 billion) in the second quarter, up 70 percent from a year ago, the biggest such rise in 7 years.

Tencent’s revenue, that has been scaling new highs every quarter since 2007, surged 59 percent to 56.6 billion yuan.

Both profit and revenue were all-time highs and soared past average estimates of 14.15 billion yuan and 52.98 billion yuan, respectively, from analysts polled by Thomson Reuters.

The popularity of the fantasy role-playing game Honour of Kings based on Chinese historical characters helped Tencent’s smartphone games revenue climb 54 percent to 14.8 billion yuan, surpassing that from PC games for the first time.

Honour of Kings is the top-grossing mobile game in the world. It has become so popular that Tencent had to introduce curbs on play time last month amid reports of serious addiction among children.

While the Chinese tech giant noted “exceptional strength” from PC games including League of Legends, it cautioned revenue growth rates from the sector were expected to slow down.

Online advertising revenue rose 55 percent to 10.15 billion yuan, helped by a 61 percent rise in “social and others advertising” revenue, mainly from WeChat advertisements.

Monthly active users of WeChat, a messaging-to-payment superapp that is at the core of Tencent’s mobile ecosystem and accounts for about a third of the time spent online by Chinese mobile users, rose to a new record of 963 million.

China’s rapid adoption of the cashless lifestyle, evident from an 86 percent jump in mobile payment transactions in 2016, helped Tencent log fast growth in its payment services.

Tencent, together with Alibaba’s (BABA.N) Alipay, dominates China’s digital payment space.

Tencent, which at the end of 2016 had more than 600 million users of its payment services made up of WeChat Pay and QQ Wallet, said it plans to increase investment in payment, cloud services and artificial intelligence.

In the three months to June, payment and cloud service helped Tencent’s “other” revenue jump 177 percent, a slower pace of growth that the previous quarter, to 9.65 billion yuan.

Revenue from social networks, driven by that from live broadcast, video and music, rose 51 percent to 12.94 billion yuan over the period.

Tencent’s shares, which have soared 70 percent this year, closed at HK$323 Wednesday before the results, giving it a market value of $387 billion.

Reporting by Sijia Jiang; Editing by Himani Sarkar