Tencent Profit Surges as Domestic Games Revenue Resumes Growth — Update

By Sherry Qin

Chinese technology giant Tencent Holdings reported a surge in second-quarter profit as a blockbuster game release led a turnaround in the key domestic gaming division after two quarters of declining revenues.

The videogame and social-media company said Wednesday that its net profit jumped 82% from a year earlier to 47.63 billion yuan, equivalent to $6.66 billion, and revenue increased 8.0% to 161.12 billion yuan. While the quarterly revenue was roughly in line with analysts' estimates, its bottom line soundly beat the consensus.

Tencent's domestic game sales returned to growth, rising 9% from a year earlier after the strong debut of blockbuster title "Dungeon & Fighter Mobile," developed by South Korean company Nexon and distributed in China by Tencent.

Beijing in February approved the long-delayed game alongside a batch of foreign videogames, in a bid to support the gaming industry and the broader market after previous tightening.

DnF Mobile consistently ranked No. 1 in daily gross billing for four weeks on iOS since its May release and likely grossed about 5.5 billion yuan in the first 41 days, Citi analysts said in a research note.

Tencent said the game "reactivated millions of IP fans and is retaining players well, positioning it to become our next evergreen major hit."

The company's Hong Kong-listed stock has climbed nearly 30% this year, with most of the gains coming in the second quarter as investors piled in, attracted partly by the hit game's success.

Besides the gaming segment, Tencent's primary revenue driver, the tech giant has increasingly tapped the massive user traffic of its WeChat app to diversify its revenue streams. Its online advertising sales climbed 19% despite China's sluggish economy, benefiting from its TikTok-style video accounts embedded in WeChat.

Analysts have said that its video accounts could become a long-term monetization tool given its current low ad loads and lower mix of commercial content compared with peers.

"We see a tremendous amount of untapped value in WeChat as it continues to increase monetization through advertising and acts as a major gateway for other internet services," Morningstar analyst Ivan Su said in a recent note.

The fintech and business services division remained a weak spot in the latest earnings report, with revenue growth decelerating to 4%, dragged by slow consumption spending and a decline in consumer loans amid China's stricter risk-control measures.

Overall, Citi called it a "strong set of result, further demonstrating Tencent's continued effort in delivering sustainable high-quality profit growth," it said in a note.

Tencent is the first major Chinese tech company to report earnings for the most recent quarter. Peers Alibaba and JD.com are scheduled to release quarterly results on Thursday.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

August 14, 2024 07:34 ET (11:34 GMT)

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