Tencent Earnings Power Through Tech Crackdown -- Heard on the Street
May 20 2021 - 8:39AM
Dow Jones News
By Jacky Wong
Regulatory concerns have clouded the outlook for the world's
largest gaming company lately. But the latest results for Tencent
show it's still playing the game well.
On Thursday the Chinese company reported a 25% year-over-year
increase in revenue for the quarter ending in March, above
analysts' estimates on S&P Global Market Intelligence. Its
profit grew 65%, also beating expectations. That was padded by
nearly $3 billion of gains coming from portfolio investments.
The boost from the pandemic is surely fading for Tencent but it
doesn't look like the company is suffering much of a hangover.
Revenue growth from smartphone games has slowed from last year's
exceptionally high rate, but still managed to increase 19%
year-over-year. Tencent's Honour of Kings and Peacekeeper Elite
have continued to be China's most popular mobile games month after
month. Recently launched game Moonlight Blade Mobile is also doing
well. Revenue from abroad continued to increase. Its PUBG Mobile
remained one of the top grossing games in the world.
Tencent's cloud business has also extended its winning streak.
Revenue at its fintech and business services division, which
includes its cloud business, grew 47% from a year earlier last
quarter. This is partly due to including the revenue from Bitauto,
a car website Tencent acquired last year. The segment has also
become more profitable: gross margin was 32% last quarter, the
highest since separate results for the segment became available in
2018.
Tencent's stock has lost a fifth of its value -- nearly $200
billion -- from its January peak as sharply higher regulatory
scrutiny has sunk the whole Chinese tech sector. Alibaba, which was
hit by a record $2.8 billion fine for anticompetitive behavior, has
lost a third of its value since October.
Tencent has fared relatively better on the regulatory front so
far, but risks are also emerging. Its music division said this week
it's under increased regulatory scrutiny from authorities. Its
advertising business may also be affected by tighter regulations on
the education sector, which is a big online advertiser.
Investors have probably been assuming the worst about the
company's regulatory risks. These good results may provide a
much-needed lift to Tencent's share price.
Write to Jacky Wong at JACKY.WONG@wsj.com
(END) Dow Jones Newswires
May 20, 2021 08:24 ET (12:24 GMT)
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