Tencent Q3 Revenue Jumps Above Expectations

Internet company opens its wallet to drive growth in slowing economy

Tencent Holdings Ltd.’s growing appetite for spending on new businesses helped fuel a stronger-than-expected rise in revenue despite a weakening Chinese economy.

Asia’s largest internet company ratcheted up spending by 69 percent in the third quarter to bankroll forays into content, cloud computing, online finance and video-streaming. That in turn drove a faster-than-anticipated 52 percent rise in revenue to 40.4 billion yuan ($5.9 billion) for the operator of social-media phenomenon WeChat.

Like arch-rival Alibaba Group Holding Ltd., Tencent is intent on exploring new businesses beyond its traditional stronghold, hoping to counter a long-term deceleration of the world’s second-largest economy. It’s building data centres to offer cloud services to corporate clients, developing an online finance operation, and amassing a content library to underpin a Netflix-like video streaming site.

All that comes at a cost.

Last quarter, overall spending reached 18.6 billion yuan. That helped push gross margins to 54 percent from more than 58 percent a year ago, according to Bloomberg calculations. Tencent’s shares slid as much as 1.7 percent to HK$193.50 on Thursday.

“Tencent’s margins were weaker mostly because of its expansion into new business, including payments and cloud,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP.

Net income grew 43 percent to 10.6 billion yuan in the three months ended September, the Shenzhen, China-based company said Wednesday. But that came in slightly below the 10.7 billion-yuan average of analysts’ estimates compiled by Bloomberg.

Tencent’s efforts are beginning to show. Revenue from its “others” segment — which includes payments and the cloud — more than quadrupled to 4.96 billion yuan in the quarter. Cloud services alone more than tripled after more enterprise customers signed on, particularly from the games, video and on-demand industries.

This year, Tencent signalled its willingness to spend by agreeing to acquire control of Clash of Clans studio Supercell Oy for $8.6 billion. It’s said to have budgeted at least $295 million this year and next to invest in movies in China and Hollywood.

It’s also buying the rights to anime, comics and novels to convert into movies and mobile games.

– Foreign News, Thursday, 17 November 2016