China’s Tencent Defies Regulatory Gloom With $5 Billion Quarterly Profit

China’s tech giants are supposed to be feeling the lash of the regulators’ tongue as they come under growing anti-trust scrutiny in the areas of pricing, payment methods, and use of data to target shoppers.
But third quarter financial data from social media and entertainment titan Tencent, instead showed that the company continues to be a profit generating machine.

For the three months from July to September 2020, revenues climbed by 29% to $18.4 billion (RMB125 billion). Profit for the period climbed 85% year-on-year to $5.71 billion (RMB38.9 billion) with a corresponding leap in net margins from 22% to 31%. Stripping out one-time and non-cash items (to give a non IFRS reading) profits still increased by 33% to $4.89 billion (RMB33.3 billion).

Chairman and CEO, Pony Ma said that the quarterly results reflect the success of a strategic reorganization two years ago. But the numbers also emphasize hos China’s economy has bounced back after the worst of the coronavirus outbreak, and how that has swung Chinese consumption ever more to the advantage of digital players.

The revenue and subscription breakdowns underline the trend. “ Revenues from value added services increased by 38% to RMB69,802 million for the third quarter of 2020 on a year-on-year basis. Online games revenues grew by 45% to RMB41,422 million. The increase was primarily due to revenue growth of our smart phone games, including domestic titles such as ‘Peacekeeper Elite’ and ‘Honour of Kings,’ as well as overseas titles,” the company said in a regulatory filing.

“Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB39,173 million and PC client games revenues were RMB11,631 million for the third quarter of 2020. Social networks revenues increased by 29% to RMB28,380 million. The increase reflected contributions from digital content services including HUYA’s live streaming service, our video subscription service, and our music subscription service, as well as from in-game virtual item sales,” it continued.

Combined subscription numbers across video, literature and music climbed by 25% year on year to 213 million. The all-powerful WeChat (aka Weixin) super app so contested by the U.S. government continued to add adherents. Although nearly ubiquitous in China, WeChat monthly average user numbers were up 5% to 1.21 billion.

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