TENCENT Holdings climbed by the most in more than three weeks after better-than-anticipated earnings suggested the WeChat operator was making headway against ByteDance in a volatile Chinese Internet arena.
China’s largest company reported a 62 per cent surge in net income after doubling ad sales through its TikTok-style video accounts service. Its shares rose as much as 4.8 per cent in Hong Kong on Thursday (May 16), the first trading session after Tencent unfurled results.
Those numbers outshone rival Alibaba Group Holding, highlighting the growing divergence between China’s twin Internet powerhouses during a rocky post-Covid recovery. Tencent, the operator of the country’s ubiquitous WeChat social media gargantuan, showed how its TikTok-style service is gaining traction.
Users spent 80 per cent more time on WeChat’s video accounts, a nod to efforts to wrest engagement from its social media rival. That helped drive a 26 per cent rise in ad sales. Twinned with cost cuts, growth in advertising and cloud services helped it record its best gross margin since 2016, even as the topline plateaued.
“Tencent is firing on all cylinders for sure, margins are improving and ad growth is strong. Online games is probably going to rebound in the second quarter,” Vey-Sern Ling, a managing director at Union Bancaire Privee, told Bloomberg Television. “Tencent is able to build whatever monetisation it wants around that core group of users, because those users will never leave.”
Investors are increasingly attuned to bottom line results now that the world’s No 2 economy is emerging from Covid-era curbs and a sweeping crackdown on Big Tech. Tencent’s market valuation had reached US$460 billion before the latest results, while Alibaba had slid to about US$205 billion.
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“We expect Tencent’s share price to react positively to the good results given stronger-than-expected domestic gaming revenue and ads revenue, and higher-than-expected margin and group profit,” said Alex Yao, analyst at JPMorgan Chase. “We believe the 1Q24 results will serve as a near-term stock catalyst, with likely positive earnings revisions and multiples’ expansion.” BLOOMBERG
