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March 23, 2017

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Tencent’s quarterly net profit surges 47%

TENCENT Holdings Ltd, China’s biggest social media and online entertainment company, posted a 47 percent rise in quarterly profit yesterday, helped by strong growth in new revenue streams such as payment and cloud services.

Net profit for the three months through December rose to 10.53 billion yuan (US$1.5 billion), compared with the 11.75 billion yuan average of six estimates from analysts in a Thomson Reuters poll. Full-year profit stood at 41.1 billion yuan, up 43 percent, while revenue rose 48 percent to 151.94 billion yuan.

Tencent said revenue growth from payment and cloud services drove a 263 percent surge in revenue to 17.2 billion yuan for its business line outside value-added services and online advertising, its two biggest business segments.

Tencent, which traditionally derives the bulk of its revenue from games, is contesting rival Alibaba Group’s market leader position in mobile payment and cloud services, as its flagship social media mobile app WeChat becomes increasingly popular.

WeChat’s monthly active user number figure hit 889.3 million at end-2016 while cloud service revenue more than tripled in the year, Tencent said. But gross margins for payment and cloud services are expected to remain low in the near future, with the segment’s cost of revenue standing at a high 84 percent.

“But we view (mobile payment) as infrastructure investment and think it is very worthwhile. For cloud business, we are also in early stage investment so the cost may remain high in the near term,” Chairman and CEO Ma Huateng said at a press conference.

Revenue from value-added services such as smartphone and PC games, Tencent’s biggest line of business, rose 34 percent to 107.8 billion yuan.

Online advertising, Tencent’s second-largest line of business, saw revenue rise 54 percent to 26.97 billion yuan, with performance-based advertising revenue, mainly from its WeChat app, up 81 percent.

Core Pacific Yamaichi analyst Kevin Tam said Tencent’s games and advertising business would keep decent growth while merging payment and cloud business offered investors new interest.

“The market share of WeChat payment is now on par with Alipay’s ... We see synergy between WeChat payment and the newly launched WeChat mini apps as they can generate more transaction within the WeChat ecosystem,” he said.



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