Naspers rallies on Tencent news
Strong growth in advertising and content make up for gaming headwinds
Naspers shares gained 4.2% to R2,708.98 on Wednesday after its 31%owned associate, Tencent, released better-thanexpected results. Tencent’s profit beat analyst estimates as strong growth in advertising and content made up for a Chinese gaming business struggling with a government clampdown.
Naspers shares gained 4.2% to R2,708.98 on Wednesday after its 31%-owned associate, Tencent, released better-thanexpected results.
Tencent’s quarterly profit beat analyst estimates as strong growth in advertising and content made up for a Chinese gaming business struggling with a government clampdown.
The company reported net income of 23.3-billion yuan ($3.4bn) for the September quarter, compared with the 18.4-billion yuan average estimate. Revenue rose 24% to 80.6-billion yuan.
Tencent bucked a trend of recent let-downs, as a slowdown in the world’s secondlargest economy dampens the outlook for China’s largest corporations. Alibaba cut its outlook for annual revenue, while search leader Baidu also predicted sales below estimates.
Tencent’s performance stems in part from lowered expectations as the company grapples with a delay in new gaming licences, which has helped wipe out more than $240bn of market value since a January peak.
This meant Tencent has been
unable to make money from its newest and biggest titles, including Fortnite and PlayerUnknown’s Battlegrounds.
While China is trying to combat gaming addiction and is reshuffling regulators, uncertainty persists for gaming companies. Tencent is said to be responding with belt-tightening as it cuts marketing budgets to help tide it over.
Tencent still commands a powerful asset in WeChat, the ubiquitous messaging service used by more than a billion people to shop, pay for services and hail rides. That is a large population of longer-term consumers not just for games and adverts but also fledgling services from video to financial services.
It is also taking steps to diversify. It has elevated its cloud computing business to a status on par with gaming and WeChat, and invested billions in start-ups engaged in everything from ride-hailing to e-commerce.
“The huge mismatch between Tencent’s mobile traffic dominance and ad dollar market share speaks to its long-term ad monetisation potential,” Jefferies analysts led by Karen Chan wrote ahead of the release.
Still, that upbeat assessment came as Jefferies slashed Tencent’s earnings estimates, “to reflect near-term, mobile game growth headwinds, a more cautious advertising industry from macro-uncertainty and loss of payment-related interest income”, its analysts wrote.
Shares of Tencent fell 0.8% on Wednesday before the earnings were released.
The stock has slumped 33% this year.
WHILE CHINA IS TRYING TO COMBAT GAMING ADDICTION AND IS RESHUFFLING REGULATORS, UNCERTAINTY PERSISTS