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Tencent posts solid 3Q18 earnings

Tencent reported 3Q18 results on Wednesday (14 November), with non-GAAP earnings coming in at CNY2.061/share – up 15% YoY and ahead of the Refinitiv consensus analysts forecast of CNY1.91/ share. Meanwhile, 3Q18 net income came in at CNY23.33bn (c. $3.4bn; $1=CNY6.95) vs the Refinitiv consensus estimate of CNY19.32bn. Revenue increased by 24% YoY to CNY80.6bn ($11.59bn) in line with Refinitiv consensus analysts’ forecasts but this was still its slowest quarterly revenue growth in over 3 years, according to Reuters. The revenue increase was primarily attributed to growth in payment-related services, online advertising, digital content sales and cloud services, which made up for the Chinese government’s crackdown on gaming. China, the world’s biggest gaming market, stopped approving new games in March on the back of a regulatory overhaul, and this led to Tencent reporting its first profit decline in more than a decade in 2Q18.

The crackdown by Chinese authorities on the amount of time children can play video games and the freeze on game approvals hit Tencent’s key smartphone gaming segment revenues, which rose only 7% YoY (and 11% QoQ), to CNY19.5bn. PC gaming revenue declined by 15% YoY to CNY12.4bn. Tencent released 10 new smartphone games so far this year and indicated on Wednesday that it has 15 more ready for release, pending regulatory approval.

Tencent’s two main online platforms – WeChat (used by more than 1bn people to shop, pay for services and hail rides), and Weixin — saw average user growth slow to 2.3% QoQ, but still attracted more than 1.08bn monthly average users (MAUs) and grew 10.85% YoY. Tencent’s online advertising business achieved 47% YoY and 15% QoQ growth in revenue to CNY16.2bn (now accounting for 20% of total revenue), while cloud services revenues more than doubled YoY and increased at a double-digit percentage rate QoQ (cloud revenues for the first three quarters of the year exceeded CNY6bn).

Tencent’s share price has slumped c. 33% YTD, closing at HKD272.20/share on Wednesday prior to the results release.



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