Tencent Earnings Beat Analyst’s Projection

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WeChat mascots are displayed inside Tencent office at TIT Creativity Industry Zone in Guangzhou, China May 9, 2017. (Photo: REUTERS/Bobby Yip)

Tencent Music Entertainment Group surpassed the projection of analysts on its first quarter 2019 adjusted earnings of 11 percent per American Depository Shares (ADS). The social media and gaming giant's investments rose as its fintech and cloud revenues make up for the declines in games.

In the first quarter of 2019, the company gained 17percent in net profit to 27 billion yuan. The net profit is above the average estimate of 13 analysts compiled by Refinitiv. The company's profit increased by 46 percent to 11.1 billion yuan in net other gains including investments. However, revenue came in at 85.5 billion yuan with growth at an all-time low of 16 percent.

Last year, China's internet regulators suspended the approval of new games which caused serious trouble to Tencent. The company posted its sharpest decline in the three months until December and the slowest annual profit growth in 13 years.

Tencent's revenue gained 28 percent year over year to RMB 1.61 billion from online music services. The rise in revenue was driven by user subscriptions, sublicensing music content to other companies and sales of digital music albums.

The company's user base expanded in the first three months of the year. Paying users in online music reached 28.4 million, with an increase of 27.4 percent. Mobile MAU-social entertainment rose 0.4 percent year on year to 654 million. Paying users for social entertainment are up 12.5 percent to 10.8 million. Tencent's music library currently included more than 35 million tracks from local and international music labels. The company signed partnerships with music labels like SM Entertainment Group, one of the largest music repositories in Korea.

Shares of the company closed with a decline of more than 6 percent at $15.01, when the market closed on May 14, after the Tencent Music announced that co-president and director Guomin Xie decided to resign because of personal reasons effective on June 6. The company's revenues from paid music through sales of subscription packages increased from RMB 565 million during the same quarter of 2018 to RMB 710 million this year. Revenues from social entertainment services and others reached RMB4.13 billion, an increase of 44.3 percent, which is driven by higher revenues from both online karaoke and live streaming services.

China restarted the approvals of games in December which pave the way to the companies Perfect World Mobile in the first quarter of the year. The company seeks to find new revenues in its plan to shift to industrial permission. The company reorganized its business and created a Cloud and Smart Industries Group (CSIG) in September.

According to some market analysts, Tencent's recent resurgence is a sign that the company has finally weathered the storm that has severly hampered its market performance. Expectation about the company's future is in the positive number and many believe that this is just the start for Tencent's climb to the top of the Chinese tech industry.

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