The WeChat app of Tencent Holdings Co., Ltd. is displayed in the App Store on the smartphone among the smartphones taken in Arlington, Virginia on Friday, August 7, 2020.
Andrew Haller | Bloomberg | Getty Images
Tencent announced its three-month results as of the end of June on Wednesday. This was one of the fastest revenue growth quarters in two years and exceeded analyst expectations.
Nevertheless, an executive order signed by President Donald Trump last week may overshadow the earnings report, which prohibits any WeChat-related transactions. WeChat is a popular messaging application owned by Tencent. The executive order came into effect in September.
The following is a comparison of the consensus estimates reached by the company and Refinitiv analysts:
- income: 1
- Profit attributable to company shareholders: RMB 33.1 billion was higher than the expected RMB 27.56 billion. A year-on-year increase of 37%.
Online game revenue is one of Tencent’s most important businesses, increasing by 40% year-on-year to 38.29 billion yuan. This growth rate is faster than the growth rate in the first quarter of 2020. Analysts of China Merchants Securities predict that Tencent will realize RMB 41.6 billion in online game revenue.
Tencent’s gaming division got a boost in the first quarter as people turned to mobile gaming while staying at home during the coronavirus lockdown in China and elsewhere. Tencent warned at the time that it expected consumption in games to normalize.
The growth of the online game sector is attributed to mobile games such as “Peacekeeper Elite” and “Konour of Kings”, which helped to make up for the decline in PC game sales. Revenue from smartphone games was 35.99 billion yuan, a year-on-year increase of 62%. PC game revenue fell 6% year-on-year.
Tencent stated in its financial report: “In China, due to seasonal factors and back-to-office behavior, the user time we spend on smartphone games has increased year-on-year, but has decreased quarter-on-quarter.”
“Internationally, our MAU (Monthly Active Users) has increased significantly year-on-year and quarter-on-quarter due to the launch of new games and more user time spent during the “all-weather” period.
Last week, Trump issued an executive order banning US WeChat-related transactions. As of now, the scope of the ruling is unclear.
Investors will hope Tencent’s management will resolve some of these issues.
However, analysts believe that Washington’s move will not have a significant impact on Tencent.
An analyst from China Renaissance stated in a recent report: “WeChat itself has little impact on the business and finances of the United States.”
The analyst said: “We estimate that Tencent’s current US revenue exposure is less than 3%, and its revenue exposure is less than 5%.”
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