Warnings that Tencent, Asia's highest-valued tech company, might suffer a rare poor quarter of business proved unwarranted after the company smashed analyst expectations for its latest earnings thanks to its fast-growing mobile games business.
Revenues totaled 73.53 billion yuan ($11.5 billion) versus a Thomson Reuters estimate of 71.04 billion yuan. The Hong Kong-listed company reported an operating margin of 42 per cent, up 3 percentage points from the same period a year ago.
Net profit came in at 23.29 billion yuan versus an estimate of 17.5 billion yuan. That represented a quarter-on-quarter rise of 12 per cent.
Revenue breakdown: VAS business, 46.9B yuan (+34%); Online game, 28.8B yuan; Smartphone game, 21.7B yuan (+68%); Social networks, 18.1B (+47%); Online ad business, 10.7B (+55%); Social and others ad, 7.4B (+69%); Other businesses, 15.96B (+111%).More news: Storms Slam Northeastern US Tuesday
Operating margin rose to 42 percent from 39 percent in the first quarter of a year ago.
Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth.
Tencent has been actively investing in areas including gaming, entertainment, autonomous driving, and artificial intelligence.
Revenue from PC games was flat compared to previous year, but analysts believe the comparison was tough with the 2017 first quarter, and overall its games business was strong. The first is called "PlayerUnknown's Battlegrounds" or PUBG, which is a massive multiplayer online game.More news: Scott Wagner Wins the Pennsylvania GOP Governor Primary
"We expect Tencent to consolidate both the PC and mobile games markets", Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co., said in a report. Epic Games developed Fortnite.
In comparison, WhatsApp has 1.5bn monthly active users while 1.3bn people use Facebook Messenger. Now not available in China, it is scheduled to be launched there during the next couple of months. Tencent has big stakes in several notable Chinese companies, including e-commerce giant JD.com (JD).
Tencent's other earnings drivers included its video subscription service, which is similar to Netflix.
The social media company saw its monthly active users for its flagship WeChat app pass the 1-billion mark for the first time during the quarter, hitting 1.04 billion users worldwide by the end of March.More news: Volvo to move away from diesel with new S60