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Tencent profit beats estimates as WeChat games drive growth

CEO Pony Ma says Tencent is substantially increasing its investment in video, payment, cloud, AI tech and smart retail.

Hong Kong

TENCENT Holdings Ltd posted quarterly profits that beat estimates, bolstered by mobile game blockbusters like Honour of Kings and a growing ad business.

Net income at China's largest company almost doubled to a record 20.8 billion yuan (S$4.3 billion) in the three months ended December. That compares with the 16.6 billion yuan average of estimates compiled by Bloomberg. Sales for the quarter were 66.4 billion yuan, short of projections for 68.6 billion yuan.

Tencent's business revolves around its vast social networks WeChat and QQ, through which it distributes games, videos and music. The two messaging platforms now anchor nascent advertising and financial services businesses that have boosted confidence that the company will be able to sustain growth and - through fine-tuning various services - begin to grab a larger slice of an ads pie now dominated by Alibaba Group Holding Ltd.

Market voices on:

"We expect Tencent's game momentum to remain robust in 2018, driven by a sustainable Honour of Kings contribution as well as other new successful launches," Morgan Stanley analysts led by Grace Chen wrote on Tuesday.

"More importantly, we expect advertising to outgrow online games in 2018, with media advertising to benefit from the revamp of its news feed product."

Revenue from the value added services unit, which includes online games and messaging, climbed 37 per cent to 39.9 billion yuan. Costs, however, soared 72 per cent, reflecting the expense of acquiring video and music content to keep users hooked as well as investment in new businesses such as cloud computing.

"We are substantially increasing our investment in areas including video, payment, cloud, AI technologies and smart retail," Tencent's chief executive officer Ma Huateng, who is also known as Pony Ma, said in an e-mailed statement. That "will impact our near-term earnings".

Games remain a primary driver. After striking gold with Honour of Kings, Tencent developed two mobile versions of PlayerUnknown's Battlegrounds, the world's hottest personal computer title last year. Since their January debut in China, the pair have given Tencent a much-needed boost in momentum, attracting more than 80 million players, combined.

Honour of Kings remains a staple for Tencent. Developed in-house, the mobile hack-and-slash title loosely resembles the world's most popular desktop game - League of Legends, whose developer Riot Games Tencent acquired in 2015.

Sales from online advertising rose 49 per cent to 12.4 billion yuan, although costs surged 75 per cent in the quarter. BLOOMBERG