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Record Earning of Tencent Reflects Effect of Its Splurge on Entertainment

Record Earning of Tencent Reflects Effect of Its Splurge on Entertainment
Investors’ expectations and a slowing Chinese economy was defied by Tencent Holdings Ltd. helped by its shopping spree on premium content from Game of Thrones to NBA broadcasts.
Tencent Holdings Ltd. splashed out on mobile games and content -- including anything from anime and comics to novels as the operator of the WeChat and QQ social network services beat analysts’ estimates for second-quarter sales and profit. Confounding fears about marketing cutbacks, online advertising revenue swelled 60 percent and users surged and the strategy seemed to have paid off.
To tap the purchasing power of its billion-plus users and appeal to advertisers, Tencent is paying upfront for rich media titles. It is a strategy similar to Alibaba Group Holding Ltd. which tried to cater to a domestic audience hungry for high-quality programming is shelling out for videos, music and games in addition to making forays into cloud computing and overseas. Overall costs nearly doubled in the quarter for Tencent.
However whether the decelerating economy can be outpaced for long by the China’s largest social media service is the question beinf asked.
“Tencent was able to take market share from existing players, thanks to the amount of traffic volume its mobile apps brought in. But the main drivers for cost, like content acquisition and bank handling fees, won’t go away any time soon,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. 
And the company has shown a new-found willingness to go big when it comes to content under its founder Ma Huateng. A signature acquisition that will bring global titles Hay Day and Boom Beach into the fold is its leading bid for an $8.6 billion investment in Clash of Clans studio Supercell Oy. Assembling a Marvel-like universe of movies, comic books, online videos and T-shirts could be possible for it as those blockbusters could anchor the type of tent-pole entertainment that it is seeking. By building League of Legends into domestic powerhouses, it’s already laid the foundations for an emerging entertainment empire.
For a company that’s previously preferred taking smaller stakes in strategically important businesses, the Supercell deal is something of an anomaly.
On digital entertainment, Alibaba and search giant Baidu Inc. are the two most formidable opponents for the company. A combination of some of the country’s most popular Spotify-like services has been possible through of its QQ Music unit and China Music Corp.
Alibaba’s Youku Tudou and Baidu’s IQiyi are giving tough competiotn by its Tencent Video. Fueled by a video streaming service whose NBA games attracted twice as many unique viewers during the latest season, its online advertising business raked in 6.5 billion yuan ($980 million).
However Tencent clearly dominates in gaming. Its mobile gaming revenue alone more than doubled to 9.6 billion yuan which reflects a focus on smartphone titles. That helped it to achieve an overall revenue of 35.7 billion yuan with a 52 percent rise.
In all but one of the past six quarters, Tencent has now beaten analysts’ expectations for profit and revenue. It handily beat estimates as it to touch a record net income of 10.74 billion yuan with a 47 percent climb.


Christopher J. Mitchell

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