Domestic appetite drives Tencent profit up by 10pc

Staff reporter and Bloomberg

Tencent (0700) saw its net profit for the first quarter jump by 10 percent to 25.8 billion yuan (HK$28.9 billion), driven by a rebound in China's domestic consumption, although its online advertising income declined by 15 percent from the previous quarter.

The company's earnings missed estimates despite the fastest pace of revenue growth in more than a year.

Revenue rose a faster-than-expected 11 percent to almost 150 billion yuan for the three months ended March, exceeding the 146.29 billion yuan average forecast. But net profit of 25.8 billion yuan fell short of projections.

Meanwhile, China's most valuable company witnessed a 17 percent year-on-year growth in online advertising, but experienced a 15 percent decrease quarter-on-quarter. Mainstay internet businesses like advertising and gaming are only now emerging from their historic trough, while big tech firms have been forced to push aggressive cost cuts to endure an uncertain macroeconomic environment.

"Tencent remains one of the most uniquely positioned China internet companies, given its unrivaled WeChat ecosystem, leadership in games and new growth drivers across video account and fintech," Goldman Sachs analyst Ronald Keung wrote in a note ahead of the results.

Tencent and peers like Alibaba (9988), JD.com (9618) and Baidu (9888) are watched for clues to the health of Chinese business sentiment and consumption. JD.com's revenue barely rose during the March quarter, but the more advertising-dependent search leader Baidu returned to double-digit growth.

The WeChat operator itself had only just resumed expanding revenue in the December quarter after months of decline.

Tencent faces more specific challenges as well. It has yet to find its next big gaming success in China, after Honor of Kings and Peacekeeper Elite cemented its lead in the pre-Covid era.

The company aims to fill its long-empty pipeline in 2023 with hits like Valorant after Beijing's censors resumed licensing approvals last year.

Such new launches will test a rapidly saturating domestic market, where younger players are increasingly drawn to up-and-comers like anime specialist Mihoyo.