China’s Tencent Sees Profit Jump Due to Games

China’s Tencent Sees Profit Jump Due to Games

Tencent Holdings Ltd., the Chinese internet major said that its profit in the third quarter rose by 43% as opposed to a year before as they had raked in solid revenue from advertising and mobile games. One of the most valuable technology companies in Asia, Tencent has a market capitalization of about $240 billion. Most of the revenue of the Shenzhen-based company is derived from distributing ads as well as games from its popular social networking platforms like the messaging application WeChat, which has approximately 800 million users. The excellent performance of smartphone games was highlighted through the company’s quarterly results.

These games compensated for the slowdown in revenue from games played on personal computers. The company has been trying to diversify its revenue stream due to which it has given its advertising business a boost by taking a page out of Facebook Inc.’s book and placing more targeted ads on its social networking platforms. In the next few years, the company’s expected growth is going to be driven by revenue earned from the advertising business as well as mobile payments. Tencent disclosed that net profit reached 10.65 billion yuan in the three months ended on 30th September as compared to 7.44 billion yuan a year before.

As far as revenue is concerned, it reached 40.39 billion yuan, which is an increase of 52%. Tencent is the largest publisher of games worldwide in terms of revenue and in the past couple of years, it has been expanding its gaming business overseas through acquisitions. In the previous month, Tencent led a Chinese group of investors to complete a deal worth $8.6 billion for purchasing a majority stake in Supercell Oy of Finland. The company is known for making some of the highest grossing mobile games such as Clash Royale and Clash of Clans.

The structuring of the Supercell deal has been done in such a manner that there will not be a consolidation of the Finnish firm in Tencent’s earnings. There was an 87% increase in revenue generated from smartphone games in the third quarter. Popular games in China like the battle strategy game called Honor of Kings had given revenue a boost. The overall revenue of Tencent from games grew by 27% even though there was a 10% decline in revenue generated from games played on personal computers. Almost half of the overall revenue of the firm comes from games, but the company has been trying to generate more revenue from advertising.

There was a 51% increase in ad revenue in the third quarter as compared to a year before. Since last year, ads have been placed by Tencent in the Moments section of WeChat for photos and updates, which are quite similar to the sponsored posts by Facebook. Tencent stated that one of the most important tools that had contributed to its ad revenue growth was WeChat. There was an 83% increase in revenue from performance-based ads, which were placed in the Moments section. Electronic payment is also a fast-growing segment for Tencent.

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