TENCENT FALLS FLAT International, Page 21
Going gets touch for Chinese Investment Holding company
TENCENT Holdings posted a fourth-quarter profit that missed analysts’ estimates amid a surge in costs and rising competition in the mobile gaming market.
Net income rose 47 percent to 10.5 billion yuan (R18.9bn) in the three months to December, the Shenzhen-based company said yesterday. That compares with the 11-billion yuan average of analyst estimates compiled by Bloomberg.
Tencent is competing for users as more people shift to mobile games, which generate lower margins and have shorter lifespans than desktop titles. As its home market becomes saturated, the company needs to find new sources of growth by delivering more hits, particularly because its WeChat messaging service is having a tough time expanding overseas.
“Mobile gaming revenue likely softened in the fourth quarter,” Shi Jialong, a Hong Kong-based analyst at Nomura International, said before the earnings. Shi attributed the weakening to the company’s “intentional slowdown in mobile game monetisation”.
The cost of revenue rose by 60 percent to 20.2 billion yuan from a year earlier. Revenue rose 44 percent to 43.9 billion yuan, compared with estimates of 44billion yuan.
Tencent’s shares fell 1.6 percent to HK$225.20 (R366) in Hong Kong before its earnings were announced.
The stock has gained 19 percent this year, compared with a 20 percent gain for New Yorklisted rival Alibaba.
Revenue from the value added services unit, which includes online games and messaging, jumped 27 percent to 29.2 billion yuan in the fourth quarter, while online advertising sales climbed 45 percent to 8.3billion yuan.
Increase in the cost of revenue since last year
652.5 million.
To diversify its revenue, the company is buying content from anime, comics and novels to convert into movies and mobile games.
Although games have underpinned Tencent’s rise, it risks getting drawn into a political spat between China and South Korea.
The company hosts games from South Korean developers and could run foul of a Chinese boycott of goods from its Asian neighbour, in retaliation for hosting a controversial US missile-defence system. The approval process for new games could now take much longer, Shi said.
China’s gaming revenue market could grow 43 percent to $12.85bn (R162bn) by 2020 from last year, according to PricewaterhouseCoopers.
WeChat’s new “mini programs” potentially pit the messaging service against Android and Apple app stores. The slimmed-down, embedded apps allow users to access services from shopping to ride-hailing without the need to download full versions of apps.
Tencent is investing in content to keep users on its platforms, adding new games and making inroads into Hollywood by funding blockbusters.
It is sitting atop a plethora of intellectual property for anime and online novels that are distributed via its websites.
The company has aspirations to create a Marvel-like movie empire, as it competes with Alibaba for user eyeballs.