Tencent Holdings (TCEHY +3.86%) announced another stellar quarter Wednesday morning, highlighting not only broad strength across its social media and gaming platforms, but also better-than-expected profits even as the Chinese internet leader continued to invest heavily in driving top-line growth.
With shares up nearly 7% in response, let's have a closer look at what Tencent accomplished over the past few months.
Image source: Getty Images.
Tencent results: The raw numbers
| Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
RMB 73.528 billion ($11.693 billion) |
RMB 49.552 billion |
48.4% |
|
Net profit attributable to Tencent shareholders |
RMB 23.290 billion ($3.812 billion) |
RMB 14.476 billion |
60.9*% |
|
Earnings per diluted share |
RMB 2.435 ($0.38) |
RMB 1.522 |
60% |
Data source: Tencent Holdings.
What happened with Tencent this quarter?
- On an adjusted (non-GAAP) basis, which excludes acquisition expenses and other non-cash items, profit attributable to Tencent shareholders grew 29% year over year to RMB 18.313 billion ($2.912 billion as of May 16, 2018), or RMB 1.915 per diluted share.
- Tencent doesn't offer quarterly financial guidance. But most investors were looking for significantly lower earnings of RMB 17.5 billion on revenue of roughly RMB 71.5 billion.
- Combined WeChat and Weixin monthly active users (MAU) grew 10.9% year over year to 1.04 billion, up from 989 million last quarter.
- Qzone MAUs declined 11% to 562.3 million.
- QQ instant messaging services MAUs declined 6.4% to 805.5 million, though QQ smart device MAUs simultaneously increased 2.4% to 694.1 million.
- Fee-based subscriptions to Tencent's value-added services (VAS) increased to 147.1 million, up from 135 million last quarter and good for growth of 23.6% year over year.
- VAS revenue increased 34% to RMB 46.877 billion, including:
- Online games grew 26% to RMB 28.778 billion, driven largely by smartphone titles like MU Awakening, QQ Speed Mobile, and Honour of Kings.
- Social networks revenue grew 47% to RMB 18.099 billion, driven by digital content services including virtual item sales, live broadcast, video streaming subscriptions, and the WeSing music service.
- Online advertising revenue increased 55% to RMB 10.689 billion, including:
- Media advertising grew 31% to RMB 3.299 billion, driven by Tencent Video.
- Social and other ad revenue grew 69% to RMB 7.39 billion.
- Revenue from other businesses climbed 111% to RMB 15.962 billion, driven by payment and cloud services.
- Adjusted EBITDA grew 45% to RMB 30.856 billion.
- Capital expenditures tripled to RMB 6.318 billion.
- Free cash flow declined 46% to RMB 13.0 billion.
What management had to say
Tencent Chairman and CEO Ma Huateng said:
In the first quarter of 2018, we launched the popular tactical tournament mobile games and enhanced the capabilities of widely used services such as our Weixin Mini Programs, deepening engagement across our social, games and media platforms. We drove adoption of our infrastructure services, seeing notable progress in areas such as mobile payment, cloud services, online financial services, and smart retail. We will continue to invest in improving our own products as well as enabling services for our partners, in order to fulfill our mission of enhancing the quality of life through Internet services.
Looking forward
Tencent declined to provide specific financial guidance. But during the subsequent conference call, management predictably reiterated its plans to sustain strategic investments aimed at driving continued growth and taking share in their various markets.
In the end, this was a relatively straightforward quarterly beat from Tencent relative to both top- and bottom-line expectations. And it should be no surprise to see Tencent stock rallying in response.
