Tencent Q4 Profit Jumps on Higher Gaming, WeChat Usage During COVID-19 Pandemic

Sam Reynolds
Tencent Leyou David Jaffe

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Tencent HKG:0700 reported its fourth-quarter earnings after the market closed in Hong Kong Wednesday and before New York opened, posting double-digit growth in profit and revenue, but warning that while the COVID-19 virus has yet to harm the company it might have a strong impact on future earnings. 

Tencent posted a 25% growth in revenue during the last three months of its fiscal year to $15.1 billion and a 52% increase in profit hitting $3 billion. For all of 2019, Tencent reported a net profit of $13.2 billion, up 19% compared to the previous year.

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However, analysts were expecting slightly stronger profits for the quarter at $3.2 billion according to polls done by Refinitiv. The company declared a HKD1.20/share final dividend, a 20% increase from prior dividend of HKD 1.00.

Tencent said that its domestic gaming revenue only rose by 10% during the reporting period as its lineup of titles grew old for local gamers (its license approvals to import its selection of US games into China have been delayed) however, international gaming revenue nearly doubled and now accounts for 25% of all revenue in the gaming division. Until Tencent gets license approval to import hit US games like Call of Duty Mobile it must rely on these cash cows.

As e-commerce was the only way people in China could purchase things during the lockdown that lasted most of January and February, Tencent reported that its WeChat Monthly Active Users and WeChat Merchant count spiked. In the fourth quarter of 2019, the company exceeded 1 billion daily average transactions for commercial payments, covered over 800 million monthly active users, and worked with over 50 million monthly active merchants.

The company also disclosed the COVID-19 virus drove 8 billion visits to its WeChat platform as users flocked to get “health codes” they need to show authorities in order to travel around China.

With most white-collar workers forced to work from home during this quarantine period, Tencent's recently launched Tencent Meeting platform exceeded 10 million DAUs during the first two months of the year. The company serendipitously launched the platform in December 2019, roughly a month before the country went into lockdown.

Tencent warns that the coming quarters will be challenging for its online advertising business as companies cut back on spending. China's National Bureau of Statistics said recently that industrial output had dropped 13.5% for the first two months of the year effectively signalling that the economy had shut down during the worst of the pandemic. Unemployment has also jumped to 6.2%, with retail sales dropping 20% on year. All in all, the economy experienced its first quarterly contraction since 1989.

Tencent will open the US trading day at $44.54.

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