Tencent outstrips forecasts with strong games, payments growth

By Cate Cadell (Reuters) - Tencent Holdings Ltd <0700.HK>, China's biggest gaming and social media firm by revenue, surpassed forecasts to post its highest quarterly profit growth in over two years on Wednesday, buoyed by a strong growth in gaming and digital payments. The firm, which has a market value of $316 billion (£243.9 billion), has sought to boost profits this year by expanding the use of its payments app, WeChat Pay, among local and international merchants. "(WeChat) is increasingly playing an important role in the commercial world," said President Martin Lau during an earnings news conference call, adding that the firm has added analysis tools and services for merchants using the app. The app, which contains its own mini app store and includes payment, taxi-booking and wealth management tools, is the world's third-largest personal messaging app after Facebook's WhatsApp and Facebook Messenger, but has increasingly targeted merchants. Recently the firm said it wanted to provide services for every shopowner in China within two years. Global monthly active users of WeChat rose to 938 million in the first quarter from 762 million a year ago, it said. Tencent's profit increased by 58 percent to 14.3 billion yuan (£1.6 billion), ahead of the median forecast of 13.2 billion yuan given by eight analysts in a Reuters poll. Revenue was up 55 percent at 49.5 billion yuan, while revenue from online ads rose 47 percent to 6.9 billion yuan and social networks revenue grew by 56 percent to 12.3 billion yuan. Tencent also said it has diversified its gaming portfolio and expanded into new business lines including cloud computing services and artificial intelligence (AI). First-quarter revenue for its online games business, which includes popular titles "Honour of Kings" and "Dragon Nest Mobile", increased by 34 percent to a record 22.8 billion yuan, buoyed by promotions during the Chinese New Year period. China is the world's largest gaming market by revenue, and is expected to account for roughly 25 percent of global game sales in 2017, according to research firm NewZoo. During the first quarter Tencent announced plans to expand its business lines overseas, including setting up an AI research lab in Seattle and plans for five new data centres in Europe, India, South Korea and Russia. It has also recently sought to grow subscriber bases on its music platform with new content partnerships. On Tuesday, the firm announced it has entered into a licensing deal with U.S.-based music firm Universal Music Group (UMG), its latest effort to boost the number of paying users on its expansive media platforms, which are still largely free. "The [Chinese] music industry has been plagued more recently by piracy, so a great deal of what we want to do... is to shift user behaviour away from the piracy model to the paid model," said James Mitchell, the firm's chief strategy officer. (Reporting by Cate Cadell in Beijing and Supantha Mukherjee in Bengaluru; Editing by Randy Fabi, Greg Mahlich)