Chinese Internet giant Tencent Holding’s latest quarterly results revealed a slowdown in its core online-games business, highlighting the need for the company to turn online advertising into a bigger engine for growth. Tencent has built a lucrative business by offering online games to users of its popular messaging and social-networking services. But the market for games played on personal computers is becoming increasingly saturated, while competition is intensifying in smartphone games. Numbers released last week showed the rate of growth in online games slowing to 17% in the second quarter from 28% in the first quarter.

Tencent Holdings’ soaring advertising income softened the blow of slower growth at its core gaming business as China’s biggest social network and online entertainment company posted a 19 percent rise in second-quarter revenue. That’s 19% more than a year earlier, and less than the 24 billion yuan average of 16 analyst estimates compiled by Bloomberg News. The slowdown in games revenue highlights the importance of online advertising as a key driver of Tencent’s future growth. In the second quarter, Tencent’s online advertising revenue jumped 97% to 4.07 billion yuan. Online video-advertising revenue in the quarter more than doubled from a year earlier, with more than half of the revenue coming from mobile videos, Tencent said.

Revenue from smartphone games, a priority for the company as the popularity of PC games declines, appeared to be hardest hit, growing at just 11 percent year-on-year compared to 82 percent year-over-year in the previous three months. Tencent’s online advertising arm, meanwhile, almost doubled quarterly revenue to 4 billion yuan ($626.5 million), the company said.

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Analysts say there is plenty of room for Tencent’s WeChat mobile-messaging app, known for its clean user interface, to become a lucrative mobile-advertising platform. Net profit reach CNY 7.31 billion, up 25 percent, and on an adjusted basis, rose 32 percent to CNY 7.98 billion. That gain was attributed to steady growth in its social and media platforms, mobile and online gaming businesses, and online advertising.

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“Tencent did not discuss Riot Games” revenue. Tencent owns 94 per cent of LoL and advertises it in China, alongside paying for the Chinese esports league “LPL’, where 12 teams compete for a chance to go to Worlds”. Since last year, Tencent has been pouring resources into getting more people to use Tenpay. Tencent President Martin Lau said Wednesday that “the most important thing is to increase the usage” of the payment system, which he described as an important entry point for online financial services.

Users of the company’s WeChat messaging application rose 9.2% from the previous quarter. The most surprising aspect of the service is the fact it has grown from 500 million active users to 549 million active users in about eight months.

First seen and source: Bulletin Leader, The Wall Street Journal

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