By Jing Yang 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 13, 2020).

Tencent Holdings Ltd. played down 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 that based on its analysis, President Trump's Aug. 6 executive order applies only to the international version of WeChat, meaning the majority of the app's business, as well as other business segments, would remain 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 geopolitical tensions between China and other countries. The White House last week issued a surprising executive order -- due to take effect Sept. 20 -- that would bar people in the U.S. or subject to U.S. jurisdiction from transactions involving WeChat or any Tencent subsidiary.

U.S. officials have said the app poses a national-security threat because it captures wide swaths of information and could give Beijing access to the personal data of Americans and of Chinese nationals visiting the U.S.

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 conflict 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 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 Mr. Trump signed the order.

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 messaging, payments and e-commerce.

"For Tencent, WeChat means everything," said David Dai, senior research analyst at Sanford C. Bernstein. 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 benefited from the coronavirus pandemic as homebound consumers turn to online entertainment to ease 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 13, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
Tencent (PK) (USOTC:TCEHY)
Historical Stock Chart
From Aug 2020 to Sep 2020 Click Here for more Tencent (PK) Charts.
Tencent (PK) (USOTC:TCEHY)
Historical Stock Chart
From Sep 2019 to Sep 2020 Click Here for more Tencent (PK) Charts.