Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Jefferies, however, cut its target price to HK$515 from HK$530, saying in a note that while Tencent's gross profit margin was higher than expected, the push to grow revenues from its advertising and financial services business might continue to weigh on the firm's margins.

Asia's second-most valuable listed company said on Wednesday net profit for the first quarter was 23.29 billion yuan ($3.66 billion), beating the average analysts' estimate of 17.5 billion yuan.

The figures also revealed Tencent's expansionary activity, with the company holding net debt of RMB 14.5 billion as of March 31 due to investments and acquisitions in sectors such as e-commerce and automobiles.

Social networks revenues increased by 47% to RMB18.1 billion as WeChat user numbers passed 1.06 billion.

WeChat had 1.04 billion users as of March and WeChat Pay is more popular than Alibaba's Alipay in offline payment, though the latter is bigger in overall transaction volume.

Tencent reported first-quarter earnings that topped analyst estimates, but investors are concerned about rising spending which could weigh on margins.

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Revenue rose 48 percent to 73.5 billion yuan, also surpassing estimates for 70.8 billion yuan.

Revenue reached 73.53 billion yuan, up 48 per cent from the same time past year, driven by online advertising, online games and messaging services.

Tencent has several different businesses including gaming and advertising, and owns WeChat, the largest messaging app in China.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future. Finally, a fourth game - QQ Speed Mobile - showed promising revenue after being taken from PC to mobile. The company is once again worth more than half a trillion dollars. Turnover increased to HK$111.3 billion from HK$100.5 billion on Wednesday.

Yet, Tencent managed to come up with another hit title "Fortnite", following the tremendous success of games like "Honour of Kings".

This helps explain why it's remained one of the world's most loved stocks by analysts, with none recommending selling for more than two years.

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