Tencent revenue tops estimates due to mobile games

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On Wednesday, Tencent reported its earnings for the first quarter that beat Wall Street expectations boosted by its hugely successful gaming business.

As reported, operating margin climbed to 42 percent for the three months through March, from 39 percent a year earlier.

Tencent, owner of the giant WeChat messaging and social network platform, has been opening its wallet to sustain growth as gaming from desktop gaming slows.

Strong mobile gaming revenue and 7.585 billion yuan in investment gains helped buoy its gross profit margin to 50.4 percent, the first sequential quarterly increase since the second quarter of 2015.

Smartphone games revenue, the largest revenue contributor, was 21.7 billion yuan in the quarter. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

Social networks revenues increased by 47% to RMB18.1 billion as WeChat user numbers passed 1.06 billion.

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Revenue from PC games was flat compared to a year ago, but analysts believe the comparison was tough with the 2017 first quarter, and overall its games business was strong.

But overall costs surged 51 per cent. Tencent executives have signaled a willingness to sacrifice margins in favor of longer term growth in new businesses, though that would depend on growing and engaging a massive user base now primarily confined to China. The tournament-style game is popular amongst the e-sports, which is competitive video gaming. It has developed a mobile version of the former that is available globally, while it owns almost half of Epic Games, the developer of Fortnite. PC-based games, meanwhile, took in sales of 14.1 billion RMB ($2.2 billion) to remain flat over the past 12 months. Now not available in China, it is scheduled to be launched there during the next couple of months.

Tencent, the world's largest videogame company, has lost nearly $90 billion of its market value since March, due to concerns about slowing growth and shrinking margins.

Shares of Tencent have come under pressure of late and are off by 17% from an all-time high from January.

Tencent's other retail partners include Carrefour, Walmart, Yonghui Superstores, Vipshop Holdings, Bubugao and JD.com, who are looking to leverage the internet giant's capabilities in mobile payments, customer acquisition and cloud services.

Tencent's WeChat messenger app now has 1.04 billion users.

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