Online Games Help Tencent Smash Q2 Earnings Expectations
Online game revenue, one of Tencent’s most important businesses, grew 40% year on year, to CNY 38.29 billion.
Tencent released its financial results for the three-month period preceding June, which exceed analyst expectations. Its total revenues reached CNY 222.9 billion, an increase of 28% over the first half of 2019. On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items, its operating profit reached CNY 73.2 billion, an increase of 31% YoY. The operating margin increased to 33% from 32% last year. Profit for the period was CNY 59.2 billion, an increase of 29% YoY. The net margin increased to 27% from 26% last year. Total cash was CNY 281.1 billion at the end of the period.
Last week, Trump took additional steps in his mobilization against Chinese technology, targeting another Chinese giant in the form of Tencent. Similar to the action against TikTok, the messaging service app WeChat owned by Tencent will be banned, as will any US transactions with Tencent. Those executive orders, released late Thursday, will take effect in 45 days.
However, analysts don't think the Executive Order will have a major impact on Tencent. According to analysts at China Renaissance: "WeChat itself has minimal business and financial exposure to the US – we estimate Tencent's current revenue exposure to the US is less than 3%, with earnings exposure of less than 5%".