Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits


China internet leader Tencent Holdings (TCEHY) reported mixed first-quarter earnings before the market open Wednesday.

Its mobile game business reported a 68 per cent increase in revenue year-on-year to 21.7 billion yuan, driven by its blockbuster title Honour of Kings, which remained the highest-grossing smartphone game in China's iOS App Store, and a newly-released mobile game version of QQ Speed, which has a strong personal computer (PC) player base. Another title - Honour of Kings - was the world's highest-grossing mobile game previous year thanks to its China-based users and Tencent has been pushing it to worldwide audiences. PC games remained flat with 14.1 billion yuan in revenue compared to same period a year ago.

Its gaming business drove revenues at Tencent during the quarter. Now not available in China, it is scheduled to be launched there during the next couple of months. Since late March, the shares have seen a sharp reversal, losing about $87 billion in value to leave Tencent with a market capitalisation of about $480 billion.

The figures also revealed Tencent's expansionary activity, with the company holding net debt of RMB 14.5 billion as of March 31 due to investments and acquisitions in sectors such as e-commerce and automobiles. And, as this chart from Statista shows, Tencent's three main social media platforms have a combined user base of 2.4 billion, slightly above Facebook's 2.2 billion users.

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Looking forward, Tencent CEO Ma Huateng said the company will continue to invest in improving its own products and enabling services for its partners. That helped drive a 55% local currency gain in advertising revenue to 10.69 billion yuan.

Monthly active user accounts (MAU) declined to 805.5 million, down 6.4 percent from the year before and from 783 million in the previous quarter. "The increase primarily reflected growth in revenues from digital content services such as live broadcast, video streaming subscriptions and our music service namely WeSing, as well as from in-game virtual item sales", Tencent said. The following month it led an investment of 617 million yuan in Pear Video, an online short video platform, that counts the listed unit of People's Daily as a shareholder.

China's largest social network and gaming company defied fears that outsized spending would hammer profitability.