Tencent Holdings Ltd. WeChat app will be displayed in the App Store on a smartphone in an arranged photo taken in Arlington, Virginia, on Friday, August 7, 2020.
Andrew Harrer | Bloomberg | Getty Images
Tencent on Wednesday reported results for the three months to end-June that beat analyst expectations in one of the fastest-growing revenue quarters in two years.
However, the earnings report could be overshadowed by an executive order signed by President Donald Trump last week banning any transaction related to WeChat, the wildly popular messaging app owned by Tencent. The executive order will take effect in September.
Here’s how the company performed against analysts’ refinement terms of Refinitiv:
- Income: 114.88 billion yuan ($ 16.53 billion) vs. 112.72 billion yuan expected. That is a rise of 29% year on year, the fastest growth since the second quarter of 2018.
- Profit attributed to shareholders of the company: 33.1 billion yuan vs 27.56 billion yuan expected. That is a year-on-year increase of 37%.
Gaming boost
Online gaming revenue, one of Tencent’s most important businesses, grew 40% year-on-year to 38.29 billion yuan. That was faster growth than seen in the first quarter of 2020. Analysts at China Merchants Securities expect Tencent to pull 41.6 billion yuan in revenue in online gaming.
Tencent’s gaming division received a boost in the first quarter as people turned to their mobile titles while sitting at home during coronavirus lockdowns in China and elsewhere. Tencent then warned that it expected consumption in the game to normalize going forward.
The online gaming division gained momentum thanks to mobile games such as “Peacekeeper Elite” and “Honor of Kings” which helped offset a decline in PC game sales. Revenue for smartphone games came in at 35.99 billion yuan, up 62% year-on-year. Revenue for PC games fell year-on-year by over 6%.
“In China, user time spent on our smart phone games increased year-on-year, but decreased quarterly due to seasonality and back-to-office behavior,” Tencent said in its earnings report.
“Internationally, our MAU (months of active users) has increased significantly year-on-year and quarter-on-quarter due to new games launches and more time spent in the stay-at-home period.”
WeChat in focus
Last week, Trump issued an executive order banning U.S. transactions related to WeChat. The scope of that ruling is unclear so far.
Investors will hope that Tencent’s management addresses some of these concerns.
However, analysts do not think the Washington move will have a major impact on Tencent.
“WeChat itself has intangible business and financial exposure to the US,” analysts at China Renaissance said in a recent note.
“We estimate Tencent’s current exposure to the US is less than 3%, with revenue exposure less than 5%,” the analysts said.
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