Tencent’s social apps have grown faster than Facebook’s over the last year, reporting a 26 percent growth rate. Source: Reuters

Tencent’s massive leap in profits led by growth of payment, cloud services

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

Net profit for the three months through December rose 47 percent to CNY10.53 billion (US$1.53 billion), compared with the CNY11.75 billion average of six estimates from analysts in a Thomson Reuters poll. Full-year profit stood at CNY41.1 billion, up 43 percent, while revenue rose 48 percent to CNY151.94 billion.

Tencent said growth from payment and cloud services drove a 263 percent surge in revenue to CNY17.2 billion 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 Holdings Group’s market leader position in mobile payment and cloud services, as its flagship social media mobile app WeChat becomes increasingly popular.

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WeChat’s monthly active user number figure hit 889.3 million at end-2016 while cloud services 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 chief executive 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 CNY107.8 billion.

Online advertising, Tencent’s second-largest line of business, saw revenue rise 54 percent to CNY26.97 billion, 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 maintain decent growth while emerging 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 in a note before the earnings result.

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Tencent said it planned to add more services within its social platforms this year, expand the popularity of smartphone games and add new games for personal computers (PCs).

Company president and executive director Martin Lau said Yuewen Group, Tencent’s former publishing unit also known as China Publishing that is planning an IPO, would target listing in Hong Kong. He said the group had no further spin-off plans.

Tencent declared a final dividend of HK$0.61 (US$0.079) per share, up from HK$0.47 (US$0.06) a year earlier.

Tencent’s shares have risen nearly 19 percent in Hong Kong this year to a record high of HK$225.2 (US$29) on Wednesday. (CNY1,000 = US$145.153) – Reuters