Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Strong mobile gaming revenue and 7.585 billion yuan in investment gains helped buoy its gross profit margin to 50.4 percent, the first sequential quarterly increase since the second quarter of 2015.

China's largest social network operator reported net income of 23.29 billion yuan (US$3.65 billion) in the quarter ended March 31, beating average market expectations by about 30 per cent. Revenue reached 73.53 billion yuan, up 48 per cent from the same time previous year, driven by online advertising, online games and messaging services. Net profit was up 61 percent year-on-year, while revenue increased 48 percent over the same period.

Tencent's investors had become used to its shares going up and up, until recent months.

Tencent had warned in March that heavy spending could crimp profit, sending shares sharply lower.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future. Now not available in China, it is scheduled to be launched there during the next couple of months.

The figures also revealed Tencent's expansionary activity, with the company holding net debt of RMB 14.5 billion as of March 31 due to investments and acquisitions in sectors such as e-commerce and automobiles. That's partly thanks to a one-time gain of nearly 7.6 billion yuan from its investments in arenas like video and news.

Monthly active user accounts (MAU) declined to 805.5 million, down 6.4 percent from the year before and from 783 million in the previous quarter.

Social and other advertising sales increased 69 per cent year-on-year as a result of more advertisers on WeChat Moments, the social media platform within its hugely popular messaging service. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter. That was followed by a $95 million stake in online short video platform Pear, after the end of the quarter. Naspers Ltd., which as Tencent's top shareholder is often regarded as a proxy for the Chinese firm, rose more than 6 percent Wednesday.

Tencent is banking next on the latest global phenomenon-"battle royale" games, in which a large group of players shoot each other until only one remains standing.

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