Tencent's Profit Is Lifted By Games -- WSJ
August 13 2020 - 3:02AM
Dow Jones News
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)
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