The Chinese technology giant Tencent Holdings has reported a strong profit increase in the second quarter, attributed to the successful release of a blockbuster game. This marks a turnaround in the crucial domestic gaming division after two quarters of declining revenues.
The video game and social media company reported on Wednesday that net profit increased by 82% year-on-year to 47.63 billion yuan (approximately 6.66 billion US dollars), while revenue grew by 8% to 161.12 billion yuan. While the quarterly revenue was roughly in line with analysts' expectations, the profit significantly exceeded consensus estimates.
Tencent's revenue in the domestic gaming market returned to growth with a 9% year-over-year increase after the successful debut of the blockbuster game "Dungeon & Fighter Mobile," developed by the South Korean company Nexon and distributed in China by Tencent.
Beijing approved the long-delayed game along with a number of foreign video games in February to support the gaming industry and the broader market following earlier regulatory tightening.
Dungeon & Fighter Mobile" held the top spot in daily grossing rankings in the iOS App Store for four weeks and generated an estimated revenue of approximately 5.5 billion yuan in the first 41 days, according to Citi analysts.
Tencent stated that the game has "reactivated millions of IP fans and keeps players engaged, positioning it to become our next long-term hit.
The Tencent shares listed in Hong Kong have risen by almost 30% this year, with the majority of the gains made in the second quarter as investors were attracted by the success of the game.
Apart from the gaming segment, which represents Tencent’s primary revenue driver, the tech giant is increasingly leveraging the massive user traffic of its WeChat app to diversify its revenue streams. Online advertising revenues rose by 19% despite the weakening Chinese economy, aided by the TikTok-like video accounts embedded in WeChat.
Analysts have emphasized that these video accounts could become a long-term monetization tool, as they currently have a low advertising load and a lower proportion of commercial content compared to competitors.
We see enormous untapped potential in WeChat as it continues to increase monetization through advertising and serves as an important access point for other internet services," wrote Morningstar analyst Ivan Su in a recently published analysis.
The fintech and business services segment remained a weak point in the recent quarterly figures, with revenue growth falling to 4%, attributed to slow consumer spending and a decline in consumer credit due to stricter risk control measures in China.
Overall, Citi described the results as "a strong performance that further underscores Tencent's ongoing efforts for sustainable, high-quality profit growth.
Tencent is the first major Chinese technology company to report results for the most recent quarter. Competitors Alibaba and JD.com are expected to release their quarterly results on Thursday.
