Tencent posts record profit on mobile games frenzy

Hong Kong - Tencent Holdings posted a second-quarter profit that beat analysts’ expectations as the company lined up more mobile games and media content to tap the purchasing power of more than a billion Chinese.

Net income climbed 47% to a record 10.74bn yuan ($1.6bn) in the three months ended June, the Shenzhen-based company said. That compares with the 9.52bn yuan average of analysts’ estimates compiled by Bloomberg.

Tencent is trying to get people to spend more in mobile games on apps including WeChat and QQ, after dominating desktops in the world’s third biggest gaming market with League of Legends and other hits.

It’s leading an $8.6bn investment in Clash of Clans studio Supercell Oy and plans to distribute its flagship title to the more than a billion users of its two social networking services.

“Tencent had a great line-up of new mobile games to attract users,” Yu Jianpeng, a Hong Kong-based analyst at ICBC International Research, said before the earnings.

“Because of Tencent’s strong distribution power, it also has more bargaining power when it comes to splitting revenue with game developers and usually takes the lion’s share.”

Sales rose 52% to 35.7bn yuan, compared with estimates for 33.3bn yuan. Mobile gaming revenue more than doubled to 9.6bn yuan.

Chinese gaming sales could climb 43% to $12.85bn by 2020 from last year,  according to PriceWaterhouseCoopers. China’s largest social network will also benefit in the longer run from a shift toward advertising spending online, which is expanding in spite of a decelerating economy.

To fuel ads and spending on virtual goods, it’s buying up intellectual property rights to anime, comics and novels with franchise potential. That content will help enrich QQ and WeChat, the messaging service that’s becoming a popular one-stop shop for mobile apps, games, news, social media and commerce.

Shares of Tencent fell 1.2% to HK$193 in Hong Kong before earnings were announced. The stock has gained 27% this year, compared with a 19% rise for New York-listed internet rival Alibaba Group Holding.