Tencent profit doubles but spending to weigh on margins

CEO Ma says Tencent is investing heavily in areas including video, payment, cloud, AI and smart retail

By BLOOMBERG

BEIJING • Tencent Holdings Ltd said investments in content and technology will weigh on margins after Asia’s most valuable company posted quarterly profit that topped projections.

Plans by the Shenzhen-based company to keep spending on areas including artificial intelligence (AI) and video may weigh on short-term profitability, but it expects the investments will anchor long-term growth. Tencent reported net income almost doubled to 20.8 billion yuan (RM12.93 billion) in the three months ended December, beating the 16.6 billion- yuan expected by analysts.

Tencent’s business revolves largely around its vast social networks WeChat and QQ, the twin platforms through which more than a billion people consume games, news and online entertainment while paying for a plethora of real-world services.

CEO Ma Huateng is now angling to grab a larger slice of an advertising pie dominated by Alibaba Group Holding Ltd, while investing in new areas such as financial, retail and computing services.

Tencent’s quarterly profit included gains in the quarter of 7.9 billion yuan thanks mainly to the initial public offerings (IPOs) of Sea Ltd, Sogou Inc and Yixin Group Ltd. Those are just three of the 600 companies it has invested in. Quarterly revenue rose 51% to 66.4 billion yuan, but fell short of projections for 68.6 billion yuan.

Revenue from the Value Added Services (VAS) unit, which includes online games and messaging, climbed 37%, but online advertising sales surged a much-quicker 49%.

Costs, however, soared 72%, reflecting the expense of acquiring video and music content to keep users hooked as well as investment in new businesses such as cloud computing.

Executives said yesterday that spending was crucial to the longer term.

“That’s why for the year of 2018 we are planning to step up our investments in a number of key areas,” president Martin Lau told a press briefing. “These investments may negatively affect our near-term profitability, but will generate long term value and new growth opportunities for us.”

Lau said the company’s Tencent Music business is suitable for its own IPO, while Ma said a listing of Tencent shares on a mainland exchange would be considered if policy conditions are viable.

Tencent’s payments services is now No 1 in China when measured by daily or monthly active users, Lau said. Its Licaitong wealth-management service harboured more than 300 billion yuan in assets as of January, while Weili Dai — its nascent lending business — had outstanding loans of more than 100 billion yuan at the end of 2017.

“We are substantially increasing our investment in areas including video, payment, cloud, AI technologies and smart retail,” Ma said in an emailed statement.