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China’s most valuable listed company Tencent’s quarterly profit has surged more than 60 per cent as the internet group focuses more on higher-margin businesses including advertising and ecommerce.
Tencent’s net income rose 62 per cent year on year to Rmb42bn ($5.8bn) in the first three months of 2024, beating analyst estimates and driven largely by a more profitable advertising business. Revenues were Rmb159.5bn, up 6 per cent compared with the first quarter of 2023.
Tencent’s share price has risen more than 30 per cent since the start of the year, as investors show signs of selectively returning to Chinese tech equities after several years of battered valuations following a regulatory crackdown and rising US-China tensions.
“Tencent posted really strong earnings after shifting towards higher margin revenue businesses like advertising, mini-game platform fees and ecommerce monetisation,” said Robin Zhu, analyst at Bernstein.
The internet giant’s online advertising sales jumped 26 per cent to Rmb26.5bn after it upgraded its advertising infrastructure, deploying AI to more precisely target ads on its ubiquitous instant messaging platform WeChat. “This is a massive win for Tencent,” said Zhu.
Tencent has made an aggressive push into short-video, with time spent on that channel increasing 80 per cent as it clawed back user attention from social media competitors including Chinese rival ByteDance’s popular app Douyin, the sister version of TikTok. Tencent has also invested in livestream ecommerce, expanding the merchandise categories on its platform and generating revenues from advertising and sales fees.
Beijing eased regulatory scrutiny of its internet giants more than a year ago, instead signalling support for what had previously been an important engine of China’s economic growth.
Tencent has benefited from the resumption of gaming licence approvals last year after they were frozen for nine months as Beijing sought to reduce addiction to online games among young people.
There were signs Tencent’s domestic gaming business was reviving, with cash receipts up 3 per cent in the first quarter, driven by growth of new titles Valorant and Lost Ark. Tencent has been investing heavily to find a new blockbuster game as its legacy titles, Honour of Kings and Peacekeeper Elite, continue to age.
Tencent is hoping the long-awaited launch later this month of a mobile version of the Nexon-developed Dungeon & Fighter, for which it owns the Chinese rights, will bolster sales in the second quarter.
Tencent’s chair and chief executive Pony Ma said “team reorganisations” in its gaming business would create “a foundation for our games revenue to resume growth in future quarters”, but gave no details.
Tencent said it was on track to complete a HK$100bn ($12.8bn) share buyback programme for this year.
Also on Tuesday, Chinese ecommerce giant Alibaba reported an adjusted fall in first-quarter adjusted net profit of 11 per cent from a year earlier to Rmb24bn.
The profit fall came as Alibaba increased spending on cloud infrastructure and other projects as it tried to win back market share from surging rivals such as PDD Holdings. Alibaba said its first-quarter revenues rose 7 per cent on the year to Rmb222bn.
Additional reporting by Ryan McMorrow in Beijing
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