Why Tencent’s Growth Story Is Not Over

Tencent Holdings (TCEHY), China’s biggest gaming and social media company by revenue, reported its fiscal 2Q17 results on Wednesday, August 16. The Shenzhen-based company beat forecasts and reported its best-ever quarterly results. Its strong results were driven by higher income from its popular Honor of Kings mobile game, triple-digit growth in payment services, and online advertising.

Tencent’s earnings surged 70% between fiscal 2Q16 and fiscal 2Q17, to 18.2 billion yuan (or ~$2.7 billion). The company’s revenue, which has been hitting new highs every quarter since 2007, soared by 59% YoY (year-over-year) to 56.6 billion yuan (or $8.4 billion). Wall Street was expecting earnings of 14.2 billion yuan and revenue of 53.0 billion yuan.

Tencent’s social advertising revenue rose 61% YoY to 6 billion yuan. WeChat, which accounts for most of the company’s social ad revenue, has 963 million monthly active users—20% more than in 2Q16. The company has been successful in monetizing its active user base.

According to App Annie, Honor of Kings has been a top global mobile game since March, and has boosted the company’s smartphone-game revenue by 54% YoY. Its revenue from PC (personal computer) games rose 29%, despite the declining PC industry.

China’s (FXI) swift approval of the cashless regime helped the company post 177% YoY growth in its “other” revenue, which consists of cloud and payment services. China’s mobile payment transactions saw an 86% surge in 2016, according to data from Bank of China. Tencent and Alibaba’s (BABA) Alipay dominate the country’s digital payment space.

Tencent stock, which has surged by 70% in 2017, climbed 6% on the New York Stock Exchange on Wednesday. The company now has a market capitalization of nearly $390 billion.