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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Tencent Holdings Limited    700   KYG875721634

TENCENT HOLDINGS LIMITED

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Tencent's Profit Is Lifted By Games -- WSJ

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08/13/2020 | 03:48am EDT

By Jing Yang

Tencent Holdings Ltd. played down threats from the Trump administration's potential restrictions on its flagship WeChat app, as increased spending through its services and videogames pushed the Chinese internet giant to better-than-expected profit and revenue in the second quarter.

Tencent, the world's biggest videogame company by revenue, said its profit in the June quarter grew 37% to 33.1 billion yuan ($4.8 billion) from the same period last year, helped by its mobile-game business. Revenue rose 29% to 114.9 billion yuan. Both beat analysts' estimates, according to FactSet.

In addition to gaming, Tencent also posted revenue growth in all of its major lines of business, including fintech, cloud services and online advertising.

Tencent said Wednesday that based on its analysis, President Trump's Aug. 6 executive order applies only to the international version of WeChat, meaning the majority of the app's business, as well as other business segments, would remain intact.

"We are in the process of seeking further clarification from relevant parties in the U.S.," Chief Financial Officer John Lo said on an earnings call.

Tencent, with headquarters in Shenzhen, has been caught in the geopolitical tensions between China and other countries. The White House last week issued a surprising executive order -- due to take effect Sept. 20 -- that would bar people in the U.S. or subject to U.S. jurisdiction from transactions involving WeChat or any Tencent subsidiary.

U.S. officials have said the app poses a national-security threat because it captures wide swaths of information and could give Beijing access to the personal data of Americans and of Chinese nationals visiting the U.S.

In June, India blocked WeChat, along with dozens of Chinese apps, on cybersecurity concerns as tensions intensified with China following a deadly border skirmish.

The White House's action -- which also targeted Chinese short-form video app TikTok -- escalated a long-simmering tech conflict between the world's two largest economies. With a market value of more than $640 billion, Tencent is one of the most profitable Chinese companies and is the country's second-largest internet company after Alibaba Group Holding Ltd.

WeChat and its domestic sister app Weixin have about 1.21 billion monthly active users combined. On Wednesday's earnings call, Tencent executives sought to distinguish the two apps and allay investors' fears that the ban could hurt its domestic businesses. Tencent shares -- which had been trading at record levels -- are down nearly 6% in the four trading days since Mr. Trump signed the order.

The company generates less than 2% of revenue from the U.S., said Chief Strategy Officer James Mitchell. The executive order "clearly covers the U.S. jurisdiction, and consequently, we don't see any impact on companies advertising on our platforms in China," he said. International brands including Starbucks Corp. and Procter & Gamble Co. use Weixin -- which means "micromessages" in Mandarin -- to market their products and services to consumers in China.

Although WeChat has far fewer local users in the U.S. than TikTok, the app is a crucial communication channel for the Chinese diaspora and foreigners who have business or personal ties in China. Silicon Valley has taken the cue of WeChat's super-app model by building products with functions spanning messaging, payments and e-commerce.

"For Tencent, WeChat means everything," said David Dai, senior research analyst at Sanford C. Bernstein. Almost all of the company's business, from gaming and advertising to videos and payments, is more or less dependent on WeChat, he said, referring to both WeChat and Weixin.

In the latest quarter Tencent's revenue from smartphone games jumped 62% from a year earlier to 36 billion yuan, driven by increasing popularity of such titles as "Peacekeeper Elite" -- a domestic clone of Tencent's international hit "PUBG Mobile" made for the heavily censored Chinese market -- and "Honor of Kings." Tencent, as well as large videogame companies in the U.S., has benefited from the coronavirus pandemic as homebound consumers turn to online entertainment to ease lockdown blues.

"Results from gaming are extraordinary," said Benjamin Wu, a senior research analyst at research firm Pacific Epoch.

Write to Jing Yang at Jing.Yang@wsj.com

 


Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED -1.45% 308.9914 Delayed Quote.47.36%
CHINA LITERATURE LIMITED -1.92% 63.9 End-of-day quote.96.62%
SANFORD LIMITED -0.91% 5.45 End-of-day quote.-31.45%
STARBUCKS CORPORATION -0.85% 87.6 Delayed Quote.0.43%
TENCENT HOLDINGS LIMITED 0.67% 605 End-of-day quote.61.08%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.35% 6.6807 Delayed Quote.-3.67%
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Financials
Sales 2020 479 B 71 582 M 71 582 M
Net income 2020 120 B 18 022 M 18 022 M
Net cash 2020 93 252 M 13 948 M 13 948 M
P/E ratio 2020 42,1x
Yield 2020 0,25%
Capitalization 4 985 B 742 B 746 B
EV / Sales 2020 10,2x
EV / Sales 2021 8,22x
Nbr of Employees 70 756
Free-Float 60,4%
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Mean consensus BUY
Number of Analysts 49
Average target price 534,73 CNY
Last Close Price 524,02 CNY
Spread / Highest target 34,6%
Spread / Average Target 2,04%
Spread / Lowest Target -32,6%
EPS Revisions
Managers
NameTitle
Hua Teng Ma Executive Chairman & Chief Executive Officer
Chi Ping Lau President & Executive Director
Yu Xin Ren COO & President-Interactive Entertainment Group
Shek Hon Lo Chief Financial Officer & Senior Vice President
Chen Ye Xu Chief Information Officer
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