Tencent Surges as Profit Beats Estimates on Mobile Games, Ads

Tencent added games and advertising services to messaging applications including WeChat, known as Weixin in China, as it competes with Alibaba Group Holding Ltd. and Baidu Inc. Photographer: Brent Lewin/Bloomberg

Tencent Holdings Ltd. (700), Asia’s largest Internet company, jumped the most in more than two years after first-quarter profit soared because of online game sales and advertising revenue from its WeChat and QQ messaging services.

The Shenzhen-based company jumped as much as 8.95 percent, heading for its biggest gain since October 2011, as stockholders approved a 5-for-1 share split. Net income jumped 60 percent to 6.46 billion yuan ($1.04 billion) in the three months ended March, helped by one-time gains, beating the 4.86 billion-yuan average of nine analysts’ estimates compiled by Bloomberg.

Tencent is adding services to apps including WeChat, known as Weixin in China, as it competes with Alibaba Group Holding Ltd. and Baidu Inc. (BIDU:US) Tencent is counting on messaging, e-commerce and games like Blade & Soul and Candy Crush Saga to win a bigger slice of China’s 618 million Internet users as they migrate toward content on their smartphones and tablet computers.

VIDEO: Tencent Profit Beats as WeChat Boosts Games Revenue

“Tencent has a great advantage in promoting and distributing its mobile games because it has platforms like WeChat that have a huge user base,” Li Yujie, an analyst at RHB Research Institute Sdn. in Hong Kong, said by phone today.

Non-GAAP profit rose 29 percent to 5.19 billion yuan and provided a better picture of the quarter’s performance, President Martin Lau said on a conference call yesterday.

Apple, Android

“In terms of monetization around Weixin platform and mobile QQ platform, the successful launch of mobile games is actually a big achievement,” Lau said. “We’ve proved that a good mobile platform that provides a lot of user interaction, that captures a lot of usage, will have a lot of monetization potential.”

Revenue rose 36 percent from a year earlier to 18.4 billion yuan, the company reported yesterday. Online game revenue increased to 10.4 billion yuan, and online advertising revenue rose 38 percent to 1.17 billion yuan.

Mobile-phone game revenue tripled from the previous quarter to 1.8 billion yuan, according to the filing.

Tencent has introduced 18 games for Google Inc. (GOOG:US)’s Android operating system and 16 games for Apple Inc. (AAPL:US)’s iOS, including GunZ Dash, Piyush Mubayi, an analyst at Goldman Sachs Group Inc. (GS:US) in Hong Kong, wrote in a May 9 report.

‘Mid-Core Games’

“We see the potential to add more mid-core games and also over time to start introducing some of the harder core titles that are popular in Korea and Japan,” James Mitchell, chief strategy officer at Tencent, said on the call.

Mid-core games refer to titles that attract users to play for a longer duration of time and spend more money, Mitchell said.

The company’s open platform shared 5 billion yuan in revenue with developers, Dowson Tong, president of the social network group, said at a conference in Beijing on May 10.

Tencent’s social-network business that includes products like QZone, a platform that allows users to write blogs and upload photos, helped generate revenue of 4 billion yuan. Qzone’s mobile-device monthly active users reached 467 million in the first quarter.

“The vision for us around the two social mobile platforms is to connect people with various things,” Lau said, referring to QQ and WeChat. He added the connections included people, content and offline services.

WeChat, QQ

The company’s stockholders approved a proposal to split each share into five as the company tries to boost holdings by individuals. The Hong Kong market requires investors to buy shares in multiples of 100.

The company also recorded one-time gains through a transfer of its e-commerce businesses to JD.com and its sale of shares in ChinaVision Media Group Ltd.

QQ, which had about 848 million monthly active users at the end of March, caters to people looking for entertainment content, usually in second- and third-tier cities. WeChat, which has about 396 million monthly active users, is geared toward white-collar consumers.

“The results were strong as income from mobile games on QQ and WeChat grew faster than we expected,” said You Na, an analyst at ICBC International Research Ltd. in Hong Kong. “People initially were only upbeat about WeChat and worried that QQ’s growth would slow down, but the latest mobile active users show that QQ remains strong.”

Alibaba, Facebook

Competition among Internet companies is intensifying as Alibaba filed for what may be the largest initial public offering in the U.S. on May 6. Chinese Internet companies led by Alibaba and Tencent have announced 61 acquisitions and investments with a value of $24.5 billion since 2012, according to data compiled by Bloomberg.

Tencent said May 6 it will buy a stake in digital mapping provider NavInfo Co. for 1.17 billion yuan.

Recent deals have highlighted the potential value of WeChat. In February,Facebook Inc. (FB:US) agreed to pay as much as $19 billion for rival message service WhatsApp Inc. The same month Rakuten Inc. agreed to buy message and calling app Viber for $900 million.

Tencent’s marketing expenses jumped 93 percent to 1.9 billion yuan in the first quarter, partly due to subsidies to encourage adoption of Weixin Payment while using the affiliate cab booking app Didi Taxi, Chief Financial Officer John Lo said.

Weixin Payment’s user growth is mainly coming from mobile game purchases, e-commerce transactions and Didi Taxi, said Lau.

Didi Taxi plans to hold an initial public offering in three to five years, preferably in the U.S., according to co-founder Zhang Bo.

WeChat may be worth as much as $64 billion, given the potential for the service to be monetized, Elinor Leung, an analyst at CLSA Ltd., wrote in a March 10 report.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Suresh Seshadri

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Microsoft’s profit dips less than expected

The Nokia Oyj Lumia 1520, left, and Nokia Lumia Icon smartphones at the Microsoft Developers Build Conference in San Francisco. Photo: Bloomberg

Microsoft on Thursday again demonstrated its gift for weathering the turmoil in the personal computer industry, turning in solid financial results for a company playing catch-up in several important markets. Net income in the fiscal third quarter was $5.66 billion, or 68 cents a share. Revenue was nearly unchanged at $20.40 billion, compared with $20.49 billion a year ago.

But the attention of investors recently seems to be less on how much money Microsoft is making and more on a series of bold bets to reshape the company. The latest of those bets is set to take a critical step forward Friday when Microsoft completes its $7.5 billion acquisition of Nokia’s handset business.

The deal is by far the riskiest in Microsoft’s 39-year history, turning hardware - formerly a side business at Microsoft - into a far more integral part of the company. Overnight, the acquisition will expand the company’s workforce by nearly a third, as 30,000 Nokia employees will fall under Microsoft’s sphere, creating giant logistical challenges.

Microsoft said its net income for the three months that ended March 31 - the company’s fiscal third quarter - was $5.66 billion, or 68 cents a share, compared with net income of $6.06 billion, or 72 cents a share, in the same period a year earlier.

The declines were partly the result of a $1.66 billion in deferred revenue the company had in the same quarter last year, which was related to one-time promotional offers it extended to customers who bought new versions of Windows, Office and other products. When that money is not included, Microsoft’s revenue grew 8 per cent and its earnings grew 5 per cent.

Microsoft’s results were better than Wall Street was expecting. Microsoft’s shares rose more than 2 per cent in after-hours trading after the release of its results. The financial report showed that some recent initiatives are growing quickly. The company said revenue from its Azure cloud computing business rose 150 per cent. Revenue from its Surface tablet computer rose 50 per cent, to $500 million.

“Microsoft and Nadella continue to have massive challenges ahead around Nokia, the tablet and diversifying Microsoft outside the PC environment,” said Daniel H. Ives, an analyst at FBR Capital Markets, speaking of Satya Nadella, Microsoft’s new chief executive.

“With that said, I would view this as a step in the right direction. I think I would characterize the Nadella era as off to a good start.”

Mr Nadella, who took over in February, has sought to set a new tone for the company. He continued that on Thursday, speaking on a conference call with financial analysts, something his predecessor, Steven Ballmer, did only rarely, and had not done at all for years. Mr Nadella said the company viewed itself as an underdog in the new markets it is entering.

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United Health First-Quarter Profit Falls on Medicare Cuts (1)

Customers wait to speak with representatives at a UnitedHealthcare store in New York. UnitedHealth has derived growth from Medicare, the U.S.-funded program for the elderly, and has the biggest Advantage program with 3 million enrollees. Photographer: Michael Nagle/Bloomberg

UnitedHealth Group Inc., (UNH:US) the biggest U.S. health insurer, said first-quarter profit fell 7.8 percent, hurt by cuts to its Medicare Advantage program for elderly and disabled Americans.

Net income fell to $1.1 billion, or $1.10 a share, from $1.19 billion, or $1.16, a year earlier, the Minnetonka, Minnesota-based company said today in a statement. Earnings beat by 1 cent the $1.09 per share average (UNH:US) of 22 analyst estimates compiled by Bloomberg.

UnitedHealth has derived growth from Medicare and has the biggest program among publicly traded insurers, with 3 million enrollees. In April, the government implemented a second round of cuts to Medicare Advantage, insurers’ private version of the program, as required under the Patient Protection and Affordable Care Act. The cuts, along with the impact of sequestration and other health reform fees, reduced UnitedHealth earnings by almost 35 cents a share, according to today’s statement.

Without the loss due to cuts from Medicare and other provisions of the Affordable Care Act, “they would’ve been at $1.45 this quarter, and that’s a lot of growth,” Sheryl Skolnick, a Stamford, Connecticut-based analyst at CRT Capital Group, said in a telephone interview. “Between the sequestration, the tax, and the Medicare Advantage cuts, that’s a big nut to overcome.”

Medicare’s actuaries have said the cuts will result in a decline in enrollment for the first time since 2004.

Revenue Gain

Revenue rose to $31.7 billion from $30 billion a year ago, as its Optum technology business helped to offset the Medicare Advantage cuts. While UnitedHealth has limited exposure to the public exchanges, its Optum unit has been credited with helping to fix the federal website for Obamacare plans, and has since been hired by several state websites. Revenue from the Optum unit jumped 29 percent to $11.2 billion.

“There’s a lot of reliance on Optum,” Skolnick said. “When you’re growing a part of your business, even a relatively small part, at that clip, it’s meaningful.”

Shares of UnitedHealth, the first of the major insurance companies to report earnings this quarter, fell (UNH:US) 1.7 percent to close at $78.19 in New York trading yesterday.

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Angela Zimm, Kristen Hallam

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