Spending spree for Tencent as net soars

Business | Bloomberg and Joyce Chen 22 Mar 2018

Bloomberg and Joyce Chen

Tencent Holdings' net profit surged 74 percent to 71.51 billion yuan (HK$88.63 billion) last year buoyed by mobile gaming, beating market expectations.

Earnings per share was 7.60 yuan and a final dividend of 0.88 HK cents was declared.

In the fourth quarter alone last year, the company saw net income of 20.8 billion yuan, almost double the same period in 2016.

Quarterly profit included gains of 7.9 billion yuan thanks mainly to the initial public offerings of Sea, Sogou and Yixin Group. Those are just three of the 600 companies Tencent has invested in.

Revenue from its value added services unit, which includes online games and messaging, climbed 37 percent but online advertising sales surged a much-quicker 49 percent.

Costs, however, soared 72 percent, reflecting the expense of acquiring video and music content to keep users hooked as well as investment in new businesses such as cloud computing.

Executives said yesterday that spending was crucial to the longer term.

"That's why for the year of 2018 we are planning to step up our investments in a number of key areas," president Martin Lau said. "These investments may negatively affect our near-term profitability, but will generate long-term value and new growth opportunities for us."

"Tencent needs to invest in new business. It would help the company build a better ecosystem infrastructure to support growth, but it will hurt margins in the short term," said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch.

After striking gold with Honour of Kings, Tencent developed two mobile versions of PlayerUnknown's Battlegrounds, the world's hottest personal computer title last year. Since their January debut in China, the two games have given Tencent a much-needed boost in momentum, attracting more than 80 million players, combined. The company is still in talks with regulators to introduce a desktop version of the latter game.

Lau said the company's Tencent Music business is suitable for its own IPO, while his boss, Pony Ma Huateng said a listing of Tencent shares on a mainland exchange via Chinese depositary receipts would be considered if policy conditions are viable.

Tencent's payments services was now No 1 in China when measured by daily or monthly active users, Lau said. Its Licaitong wealth-management service harbored more than 300 billion yuan in assets as of January, while Weilidai - its nascent lending business - had outstanding loans of more than 100 billion yuan at the end of 2017.

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