(Bloomberg) – Tencent Holdings Ltd. Revenue rose at the fastest pace in two years, triggering an economic downturn in China as it prepared for a ban on its WeChat messaging app by US President Donald Trump.
Sales increased 29% to 114.9 billion yuan ($ 16.5 billion) in the three months ended June, hitting estimates with an increase in revenue for online gaming. It reported a net income of 33.1 billion yuan which hit the highest of analysts’ projections, thanks to a gain of more than 8.6 billion yuan from asset dispositions and value gain in its portfolio of investments. Shares in Prosus NV, which owns the Internet connection of major shareholder Naspers Ltd. holds, won about 3% in Amsterdam.
China’s largest social media company has benefited from an Internet stay during Covid-19, although it still has a U.S. ban on its WeChat service with potentially far-reaching impact. While Tencent has not addressed this sanction in its outlook for profits, executives will try to reassure analysts on a call later that it can resist a White House campaign that Huawei Technologies Co. and has already polluted dozens of Chinese immigrants.
What Bloomberg Intelligence says
Tencent’s 2Q profit was driven by fierce action across all business lines, including online gaming, social advertising and fintech, delivering a dose of investor confidence as a US ban on WeChat.
– Vey-Sern Ling and Tiffany Tam, analysts
Click here for the survey.
Tencent is targeting its core housing market amid growing foreign hostility. It won approval from Beijing to earn money from Call of Duty Mobile, the smartphone version of a long-running franchise that will support its gaming business, and has mapped out a line-up of new titles for 2020 to acquire resilient franchises Peacekeeper Elite and Honor of Kings. New titles like Brawl Stars drove a 40% increase in online gaming revenue in the quarter – its biggest increase since 2017. It also spurs discussions around the US-listed Huya Inc. and DouYu International Holdings Ltd. to merge to create a Twitch-like $ 10 billion local leader in streaming games. Tencent already has Huya’s results in its own fold, and both the top and bottom swell.
One risk to its outlook was the surprise delay of Mobile Dungeon & Fighter, though analysts expect eventual approval for a Nexon Co. title that will become Tencent’s tent pole for the second half.
“Although the direct impact on revenue is small, Mobile DnF and the ban on WeChat in the US are casting a shadow over the long-term outlook,” said Bernstein analyst David Dai.
Read more: Trump’s attack on WeChat threatens a $ 280 billion tencent rally
China’s no. 2-company had burst into tears, gaining more than $ 280 billion in market capitalization since a trough in March, before U.S. President Donald Trump signed an executive order that marked WeChat a national security risk. It is unclear how the White House will define that ban, but the language of the order – which would restrict “transactions” with the Chinese company from September – leaves the door open for the administration to go far beyond WeChat to expand.
The messaging service grew monthly active users 6.5% to more than 1.2 billion as of the end of June. Launched in 2011 as a WhatsApp clone, the service has become deeply ingrained in Chinese life, indispensable for the hordes who use it to chat, shop, watch videos, play games, flirt, order food and take taxis. It pioneered the all-in-one or super-app concept by incorporating lite apps as mini-programs – a model emulated by Alibaba Group Holding Ltd. and Facebook Inc. Its success stemmed in part from the fact that China bans global services such as WhatsApp, Twitter and Instagram, allowing WeChat and a host of other Chinese equivalents to thrive in an alternative internet empire.
At the very least, Trump’s order will likely remove WeChat from Apple and Google’s mobile stores, which in turn means updating updates or even eliminating a service that is essential for communication on the factory floor, in households and in the boardroom. . And as U.S. consumer giants like Starbucks Corp. and Walmart Inc. are prevented from doing business with WeChat in China, Tencent may also take a hit for advertising and e-commerce sales.
“Uncertainties still exist for Tencent and other Chinese Internet companies with companies in the US, and Chinese pure gaming will be considered safer by investors,” Dai wrote before releasing revenue.
Read more: Why Tencent and WeChat are such a big deal in China: QuickTake
(Updates with analyst comments from the fourth paragraph)
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