Tencents Splurge on Entertainment Pays Off in Record Profit

Tencent Holdings Ltd. s  shopping spree on premium content from Game of Thrones to NBA broadcasts has again helped defy investors expectations and a slowing Chinese economy.

Second-quarter sales and profit beat analysts estimates as the operator of the WeChat and QQ {social network|social networking|myspace and facebook} services splashed out on mobile games and content —  including {anything|any such thing|such a thing} from anime and comics to novels. That strategy paid off as users surged and {online advertising|internet marketing|web marketing} revenue swelled 60 {percent|%|per cent}, confounding fears about marketing cutbacks. Its shares rose as much as 6. 2 {percent|%|per cent} to {a new|a fresh|a brand new} record in Hong Kong, on track {for their|for his or her|because of their} biggest gain in {almost|nearly|very nearly} a year.

Tencent is paying upfront for rich media titles to tap the purchasing power of its billion-plus users and {appeal to|interest|attract} advertisers.   Its {an approach|a strategy|a method} mirrored by Alibaba Group Holding Ltd., which — while making forays {into|in to} cloud computing and overseas — {is also|can be|can also be} shelling out for videos, music and games to {cater to|focus on|appeal to} a domestic audience hungry for {high-quality|top quality|supreme quality} programming. Costs overall for Tencent {almost|nearly|very nearly} doubled in the quarter.

The question is {how long|just how long|the length of time} Chinas largest social media service can keep spending to outpace the decelerating economy.

Tencent was able to {take|just take|simply take} market share from existing players, {thanks to|because of|as a result of} the amount of traffic volume its mobile apps brought in, said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong.   {But the|However the|Nevertheless the} main drivers for cost, like content acquisition and bank handling fees, {wont|won’t|will not} go away {any time soon|anytime soon|any time in the future}.

{To read|To learn|To see} a Gadfly column {on how|on what|how} Tencents ad business stacks up against Baidus, click here.

Founder Ma Huateng {has shown|shows|indicates} a new-found willingness to go big when it comes to content. Its leading an $8. 6 billion investment in Supercell Oy, a signature acquisition {that will|that may|which will} bring the Clash of Clans studio into the fold. Those blockbusters could anchor the type of tent-pole entertainment that helps it assemble a Marvel-like universe of movies, comic books, online videos and T-shirts. Its already laid the foundations for an emerging entertainment empire {by building|because they build} League of Legends {into a|right into a|in to a} domestic powerhouse.

The Supercell deal is something of an anomaly for {a company|an organization|a business} thats previously preferred taking smaller stakes in strategically important {businesses|companies|organizations}. Thats {because it|since it|as it} needs to hold its own against Alibaba and search giant Baidu Inc. on digital entertainment. Tencent has merged its QQ Music unit with China Music Corp., combining {some of the|a number of the|a few of the} countrys {most popular|hottest|most widely used} Spotify-like services.

Its Tencent Video  goes toe-to-toe with Alibabas Youku Tudou and Baidus IQiyi. Its {online advertising|internet marketing|web marketing} business raked in 6. 5 billion yuan ($980 million), fueled by a video streaming service whose NBA games attracted twice as many unique viewers during the latest season.   Tencent is even {getting into|engaging in|stepping into} Periscope-like live-streaming with Now, a new service designed to capitalize on a phenomenon thats taking China by storm.  

While a force in {social networking|social media|social network}, Tencent {is still|continues to be|remains} a relative newcomer to {online advertising|internet marketing|web marketing}, with ad revenue that Credit Suisse Group AG estimates runs at {about a|in regards to a|of a} sixth of Facebooks. {However ,|But|Nevertheless ,} investors are keeping {a close|a detailed|an in depth} eye {especially|particularly|specially} on self-service ads on WeChats Moments feature, which executives {identified as|defined as|recognized as} their single biggest growth opportunity {when it comes to|with regards to|in terms of} advertising. {There were|There have been} five times as many marketers using the self-service option last quarter than in the previous {three months|90 days|3 months}.

It {resulted in|led to|triggered} Weixin Moments becoming our largest ad-revenue generating inventory, ” Chief Strategy Officer James Mitchell told analysts on a call.

Its in gaming however that Tencent {clearly|plainly|obviously} dominates. Reflecting {a focus on|a concentrate on|a give attention to} smartphone titles, mobile gaming revenue alone more than doubled to 9. 6 billion yuan. That outpaced a 52 {percent|%|per cent} rise in overall revenue to 35. 7 billion yuan.

Tencent has now beaten analysts expectations for profit and revenue in all but one of the past six quarters. On Wednesday, it reported a 47 percent climb in {net income|net gain} to {a record|an archive|accurate documentation} 10. 74 billion yuan, handily beating estimates. Revenue from Value Added Services, a category that includes games and messaging, climbed 39 percent to 25. 7 billion yuan.  

WeChat had 805. 7 million monthly active users and the mobile version of QQ had 666. 5 million users at the end of the quarter. Popular games included shooting title Cross Fire and Naruto Mobile, based on the hit manga series.

Read more: http://www.bloomberg.com//news/articles/2016-08-17/tencent-profit-beats-estimates-as-mobile-games-lure-spenders