Tencent Third-Quarter Net Profit Rises Nearly 70%, Beating Estimates -- 2nd Update

11/15/17 10:06 AM EST
By Alyssa Abkowitz in Beijing and Chester Yung in Hong Kong 

Chinese internet giant Tencent Holdings Ltd. continued its winning streak, reporting earnings that rose nearly 70% from a year earlier, driven by growth in mobile-gaming and advertising sales, particularly on the company's video-streaming platform.

Shares of the Shenzhen, China-based company have more than doubled since Jan. 1, raising its market capitalization to nearly $466 billion. Tencent also made headlines last week when it bought a 12% stake in U.S. social media company Snap Inc., becoming one of its largest shareholders.

On a conference call with investors Wednesday, Tencent President Martin Lau said the company saw an opportunity to acquire Snap shares at "a pretty attractive price" and said Tencent may look to do "something more strategic with them" in the future.

Profits handily beat Wall Street's expectations, reaching 18 billion yuan ($2.71 billion) from 10.6 billion yuan a year earlier. Revenues climbed 61% to 65.2 billion yuan from 40.3 billion yuan. The company reported after the close of trading in Hong Kong Wednesday, where shares closed down 1.3%.

Heavy spending on video content is starting to pay off for Tencent, which at the end of September was the No. 1 video-streaming service in paid subscriptions, according to data firm App Annie. Tencent now has more than 43 million paying subscribers, up from 20 million in November 2016.

The company also said revenues from video advertising grew 70% from the year-earlier period, which helped contribute to overall online advertising revenue increasing 48% from the year-ago period.

"While the video sector as a whole is still making losses, we will continue to invest in the long run," Mr. Lau said, adding that video is an important component of the firm's cross-media strategy.

Video-streaming is a hotly contested area for Tencent and its other tech rivals, Alibaba Group Holding Ltd. and Baidu Inc. Tencent and Baidu, particularly, have been going back and forth to woo paid subscribers with a mix of exclusive and licensed content. Mr. Lau said Tencent had made headway in expanding its young female user base in drama, the most popular genre, and in scheduling programming to optimize viewership.

The bulk of Tencent's revenues continued to come from games. Smartphone gaming revenues rose 84% from a year earlier, anchored by smash hit battle game "Honor of Kings."

The company's messaging, mobile-payment and social-media platform, WeChat, which is the most popular app in China, reached 980 million users at the end up September, up 16% from a year earlier.

Its other businesses, including mobile payments and cloud services, recorded revenue growth of 143% from the year-ago period. The company said payment volume from mobile payments in brick-and-mortar stores rose 280%.

Mr. Lau said overseas growth of WeChat Pay will be serving Chinese tourists, and that globally, the company is pursuing a "partnership strategy" with local players instead of competing with them.

On the heels of Tencent's successful spinoff of its online publishing business, China Literature Ltd., Tencent executives noted that as investee companies reach maturity, the company will look to make them go public but that homegrown businesses make more sense to "stay together so they can reinforce each other."

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Chester Yung at chester.yung@wsj.com


(END) Dow Jones Newswires

November 15, 2017 10:06 ET (15:06 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.