Chinese WeChat owner Tencent Q2 earnings smash expectations

Pony Ma, founder of Tencent at the Media Integration and Development Forum in Shenzhen, South China's Guangdong province, on Sept 10, 2018. [Photo/VCG]. Sketched by the Pan Pacific Agency.

BEIJING, Aug 12, 2020, CNBC. Tencent reported results for the three months through to the end of June on Wednesday that beat analyst expectations in one of the fastest revenue-growing quarters in two years, CNBC reported.

Still, the earnings report will be overshadowed by an executive order signed by President Donald Trump last week that prohibits any transaction related to WeChat, the wildly popular messaging app owned by Tencent. The executive order comes into effect in September.

Here’s how the company performed versus Refinitiv consensus estimates from analysts:

  • Revenue: 114.88 billion yuan ($16.53 billion) vs 112.72 billion yuan expected. That’s a 29% year-on-year rise, the fastest growth since the second quarter of 2018.
  • Profit attributable to equity holders of the company: 33.1 billion yuan vs 27.56 billion yuan expected. That’s a 37% year-on-year rise.

Gaming boost

Online game revenue, one of Tencent’s most important businesses, grew 40% year on year to 38.29 billion yuan. That was faster growth than seen in the first quarter of 2020. Analysts at China Merchants Securities expect Tencent to pull in 41.6 billion yuan in online game revenue.

Tencent’s gaming division got a boost in the first quarter as people turned to its mobile titles while stuck at home during coronavirus lockdowns in China and elsewhere. Tencent warned then that it expected in-game consumption to normalize going forward.

Last week, Trump issued an executive order banning U.S. transactions related to WeChat. The scope of that ruling is unclear as of now.

Investors will be hoping that Tencent’s management addresses some of these concerns.

However, analysts don’t think Washington’s move will have a major impact on Tencent.

“WeChat itself has immaterial business and financial exposure to the US,” analysts at China Renaissance said in a recent note.

“We estimate Tencent’s current revenue exposure to the US is less than 3%, with earnings exposure less than 5%,” the analysts said.

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