The WSJ reports,"Tencent's first-quarter earnings were complicated by this year's deal-making frenzy, but underlying trends were promising. Net profit surged by 60% from a year earlier. This was partly due to one-time gains from the disposal of various investments, including two e-commerce units that Tencent traded to online shopping site JD.com as part of a complex deal where it took a 15% stake in JD. Revenue rose a healthy 36% from a year ago.
Crucially, Tencent's mobile strategy is paying off. Its flagship WeChat mobile-messaging service, similar to Facebook's WhatsApp, and a second messaging app QQ Mobile, were major drivers of top-line growth. Revenue from games on the two platforms tripled from the previous quarter to more than 1.8 billion yuan ($288.9 million), or nearly 10% of total revenue. Analysts had expected a figure of just around 800 million yuan.
Tencent shares soared early this year on excitement over WeChat, as analysts theorized it alone could be worth more than $30 billion, or around a quarter of Tencent's market capitalization. Expectations that Tencent's mobile-payments platform would take a big slice of all of China's retail transactions was another justification for its lofty valuations.
The stock is now down over 18% from its high in March. New regulations on mobile payments snuffed out some of the excitement, as did the generalized pullback in global tech stocks. China's regulatory framework for Internet finance still hasn't been settled. And now that Tencent has outsourced much of its e-commerce operations to JD, the two companies need to show they can grow margins and take on the leading player in that space, rival Alibaba.
But with some froth taken out of Tencent's shares, investors can concentrate less on far-flung scenarios and take solace that mobile monetization has begun. That's a message worth receiving".
