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Tencent reports profits driven by games and advertising

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Chinese tech behemoth, Tencent, best known for its blockbuster messaging app WeChat, has reported a net profit of $1.5 billion, up 43 percent year-on-year. The profit comes alongside a massive $6 billion revenue, up 52 percent y-o-y for 2016’s third quarter. The large amount of financials involved in the acquisition of Clash Of Clans maker Supercell, seemed to have affected the company’s balance sheet as well.

In all, games accounted for 45% of Tencent revenue, while its various social networks contributed to 24% of its income. The company also said that users are finally appearing to be more willing to pay for online subscriptions and services.

It is probably safe to say that the company owes its current success to its five year old messaging app WeChat and of course, its mobile gaming business.

WeChat, the popular Chinese messaging app, now has 846 million users per month — a 30 percent year-on-year growth and a decent increase on the 806 million MAUs reported in the previous quarter. WeChat helped the company grow by boosting Tencent’s advertising business, its fastest-growing monetization stream.

According to the company, the key drivers that led to the enormous growth of Tencent include its advertising efforts in the WeChat timeline, its mobile news app and revenue from the various official accounts for brands inside WeChat. Meanwhile, purchasing “Clash Of Clans” developer SuperCell from Softbank certainly had a major impact on Tencent’s balance sheet as net debt increased by 70% year-on-year to $13.1 billion.

Along with the app, the company’s mobile games also played an important role in generating high revenue. The company invested huge resources in acquiring SuperCell, the maker of hugely popular Clash Of Clans, in June.

Tencent’s mobile games business accounted for RMB 9.9 billion of revenue in the third quarter of 2016, which is an increase of almost 87 percent annually. While PC gaming remains a large part of the total, revenues grew just 10 percent year-on-year.

According to Chairman and CEO of Tencent, Pony Ma,

Our smart phone games and social performance advertising businesses reported above-industry YoY revenue growth rates and continued to generate healthy margins. Meanwhile, our ecosystem infrastructure services such as online payment and cloud-based services saw significant progress in adoption and usage.

Following the quarterly report, Tencent shares closed nearly 2% up at HK$196.9. At this price, the company has a massive market capitalization of US$240 billion.

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