Tencent Shares Jump on Solid First-Quarter Profit, Promising Outlook

By Sherry Qin

Tencent's shares rose as investors cheered its better-than-expected earnings and looked forward to a promising second quarter that is poised to show a rebound in the gaming segment.

Shares of the Chinese social-media and videogame giant climbed 4.2% to 397.80 Hong Kong dollars by the midday break Thursday, bringing this year's gains to 35%.

The Shenzhen-based company late Tuesday said its net profit increased 62% in the first quarter and gross profit margin expanded to 53% from 45% a year earlier. Hong Kong's stock market was closed for a public holiday on Wednesday.

Despite continued tepid sales in its gaming business amid a lack of meaningful titles, advertising revenue rose 26%, benefiting from increased engagement thanks to AI-powered ad targeting and the rapid growth of high-margin businesses, such as short videos and mini games embedded in its WeChat superapp.

"Tencent, a natural of social network platform, has substantial undermonetized time spend, which could be better monetized by deploying AI to enhance click-through rates," Citi analysts led by Alicia Yap said in a research note.

Looking to the second quarter, analysts expect continued ad segment growth and gaming revenue to regain momentum with the release of "Dungeon & Fighter Mobile" and the rebound of evergreen titles such as "Honor of Kings."

Tencent has made "proactive adjustment, driving initial recovery for the flagship games in China and international market with several games achieving record high grossing," and started to see promising results, Citi analysts said.

Nomura projects that Tencent's gaming revenue could rise 5% in the current quarter from a year earlier, backed by 11% and 2% growth in international and domestic gaming revenues, respectively.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

May 16, 2024 01:11 ET (05:11 GMT)

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