Tencent jumps after boosting online game sales

Tencent Holdings, Asia’s largest internet company, climbed the most in about six months in Hong Kong trading after posting a 35% gain in revenue from games played on desktops and its WeChat messaging app.

Tencent, in which South Africa media company Naspers is the majority shareholder, shares rose as much as 5.15% to HK$412.80 (R548.22) before trading at HK$411.40  at 11:29am in Hong Kong, heading for its biggest advance since May 20. The stock has gained 65% this year.

Billionaire Ma Huateng’s company is boosting spending on development and marketing to popularise games and services including the QQ messaging app and WeChat, known as Weixin in China.

The Shenzhen-based company hired soccer superstar Lionel Messi to promote the apps as it pursues new revenue streams, including charging for emoticons, to compete with Alibaba Group and Sina Corpoation for China’s 464-million mobile internet users.

"What people are excited about is the open mobile platform on Weixin," said Billy Leung, an analyst at RHB Research Institute in Hong Kong. "Essentially, Weixin opened up people to games."

Tencent’s five games released through QQ and Weixin had 570-million registered users within three months, President Martin Lau said yesterday during an earnings conference call.

Targets raised
Third-party developers will be invited to write games for QQ and WeChat’s mobile apps, and it expects third-party games to eventually constitute the majority of offerings, Lau said. Tencent’s price target was raised after the earnings report by Jefferies Group, Standard Chartered, HSBC Holdings, Brean Capital and Deutsche Bank.

"We expect WeChat mobile games to take off in 2014," Cynthia Meng, a Hong Kong-based analyst at Jefferies, said in a note increasing her price target to HK$492. Revenue rose 34% to 15.5-billion yuan ($2.5-billion) as sales from internet games rose to 8.4-billion yuan in the same period, the company said in a statement to Hong Kong’s stock exchange on Wednesday.

The company posted third-quarter profit that missed analyst estimates due to higher costs to compete against Alibaba, Sina and Baidu, owner of China’s largest search engine. Net income rose 20% to 3.87-billion yuan, the company said. That compared with the 4-billion yuan average profit of seven analyst estimates compiled by Bloomberg.

Adding emoticons
More games and emoticons will be added for WeChat’s users outside of China, Lau said. WeChat will become an important channel for merchants and e-commerce, he said.

"We are very focused on building user experience," Lau said during the call when asked about competition with Alibaba. "When you have the best experience users will stay, and when users stay they keep each other, and that’s the biggest value of a social network."

Selling and marketing expenses climbed 79% in the September quarter from the year earlier, with general and administrative spending rising 29% amid a boost to research and development. "Tencent has spent a lot of money on marketing and sales, including hiring famous people," Ricky Lai, an analyst at Guotai Junan International in Hong Kong, said. "Competition in the industry has tensed up and a lot of other companies are also pushing for online games." 

Alibaba, Sina
Sina’s Weibo, a microblogging service, had more than 60.2-million daily active users from June to September. Alibaba, China’s largest e-commerce company, plans to boost users of its Laiwang instant-messaging app to 100-million. Tencent also expanded into e-commerce with platforms including business-to-customer website Yixun.com and Paipai.com, which links individual buyers and sellers.

Tencent paid $448-million in September for a stake in Sogou, China’s third-largest search engine, to expand its Web offerings in the world’s largest market. More than 84% of China’s Internet users regularly access instant messaging, making it the most popular online application in the country, followed by search engines with about 80% usage, according to data compiled by Bloomberg.

Monthly active users for QQ fell 0.4% to 815.6-million people by the end of September from the end of June. WeChat saw monthly active users rise 15% to 272-million during the same period. That compares with about 1-million instant-messaging accounts in 1999, according to Tencent’s website. 

Tencent is counting on WeChat, which targets more upscale users than QQ, for its global expansion. WeChat revenue may reach 4.9-billion yuan next calendar year as the company moves faster than expected in monetising the application, John Choi, an analyst at Daiwa Securities Group in Hong Kong, wrote in a November 8 note. Ma is China’s fourth-richest man, with an estimated net worth of $10.5-billion, according to the Bloomberg Billionaires Index. – Bloomberg

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