As Trump Administration Seeks WeChat Restrictions, Tencent Profit Surges
August 12 2020 - 12:30PM
Dow Jones News
By Jing Yang
Tencent Holdings Ltd. downplayed threats from the Trump
administration's potential restrictions on its flagship WeChat app,
as increased spending through its services and videogames pushed
the Chinese internet giant to better-than-expected profit and
revenue in the second quarter.
Tencent, the world's biggest videogame company by revenue, said
its profit in the June quarter grew 37% to 33.1 billion yuan ($4.8
billion) from the same period last year, helped by its mobile-game
business. Revenue rose 29% to 114.9 billion yuan. Both beat
analysts' estimates, according to FactSet.
In addition to gaming, Tencent also posted revenue growth in all
of its major lines of business, including fintech, cloud services
and online advertising.
Tencent said Wednesday based on its analysis, the Aug. 6
executive order only applies to the international version of
WeChat, meaning the majority of the app's business, as well as
other business segments, will be intact. "We are in the process of
seeking further clarification from relevant parties in the U.S.,"
Chief Financial Officer John Lo said on an earnings call.
Tencent, with headquarters in Shenzhen, has been caught in the
crossfire of geopolitical tensions between China and other
countries. The White House last week issued a surprising executive
order -- due to take effect Sept. 20 -- that will bar people in the
U.S. or subject to U.S. jurisdiction from transactions involving
WeChat or with any Tencent subsidiary. U.S. officials have said the
app poses a national-security threat because it captures wide
swaths of information and could place the personal data of
Americans and from Chinese nationals visiting the U.S. in the hands
of the government.
In June, India blocked WeChat, along with dozens of Chinese
apps, on cybersecurity concerns as tensions intensified with China
following a deadly border skirmish.
The White House's action -- which also targeted Chinese
short-form video app TikTok -- escalated a long-simmering tech war
between the world's two largest economies. With a market value of
more than $640 billion, Tencent is one of the most profitable
Chinese companies and is the country's second-largest internet
company after Alibaba Group Holding Ltd.
WeChat and its domestic sister app Weixin have about 1.21
billion monthly active users combined. On Wednesday's earnings
call, Tencent executives sought to distinguish the two different
apps and allay investors' fears that the ban could hurt its
domestic businesses. Tencent shares -- which had been trading at
record levels -- are down nearly 6% in the four trading days since
the order was signed.
The company generates less than 2% of revenue from the U.S.,
said Chief Strategy Officer James Mitchell. The executive order
"clearly covers the U.S. jurisdiction, and consequently, we don't
see any impact on companies advertising on our platforms in China,"
he said. International brands including Starbucks Corp. and Procter
& Gamble Co. use Weixin -- which means micromessages in
Mandarin -- to market their products and services to consumers in
China.
Although WeChat has far fewer local users in the U.S. than
TikTok, the app is a crucial communication channel for the Chinese
diaspora and foreigners who have business or personal ties in
China. Silicon Valley has taken the cue of WeChat's super-app model
by building products with functions spanning across messaging,
payments and e-commerce.
"For Tencent, WeChat means everything," said David Dai, senior
research analyst at Bernstein C. Sanford. Almost all of the
company's business, from gaming and advertising to videos and
payments, is more or less dependent on WeChat, he said referring to
both WeChat and Weixin.
In the latest quarter Tencent's revenue from smartphone games
jumped 62% from a year earlier to 36 billion yuan, driven by
increasing popularity of such titles as "Peacekeeper Elite" -- a
domestic clone of Tencent's international hit "PUBG Mobile" made
for the heavily censored Chinese market -- and "Honor of Kings."
Tencent, as well as large videogame companies in the U.S., has been
a beneficiary of the coronavirus pandemic, as homebound consumers
increasingly turn to online entertainment to cure lockdown
blues.
"Results from gaming are extraordinary," said Benjamin Wu, a
senior research analyst at research firm Pacific Epoch.
Write to Jing Yang at Jing.Yang@wsj.com
(END) Dow Jones Newswires
August 12, 2020 12:15 ET (16:15 GMT)
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