Tencent’s (OTCMKTS:TCEHY) earnings report for the first quarter delivered a pleasant surprise. The company’s top-line and bottom-line numbers rose from a year ago and exceeded the expectations despite disruptions amid COVID-19.
Tencent is one of China’s top technology companies. JD.com (NASDAQ:JD), another large Chinese technology company, will likely report its earnings results on May 15. Notably, Tencent made a large investment in JD several years ago. Also, Tencent is one of JD’s strategic partners. Therefore, the company’s investors will watch JD’s upcoming earnings report.
Here are the three key takeaways from Tencent’s earnings report.
Tencent’s results beat the consensus estimates
Tencent operates in the videogame, advertising, digital payments, and cloud computing industries. Last year, the company set out to repurchase up to 10% of its shares on a program that would return billions of dollars to shareholders.
Tencent’s earnings report delivered revenue of 108 billion yuan ($15.3 billion), which beat the consensus estimate at 101.4 billion yuan. The revenue amount increased by 26% YoY (year-over-year). The company posted an EPS of about 3.00 yuan ($0.42), which beat the consensus estimate at $0.38.
Tencent wrapped up the quarter with $31 billion in cash, which gave it financial flexibility amid COVID-19.
Tencent’s gaming and advertising businesses
The gaming and advertising businesses were bright spots in Tencent’s earnings report for the first quarter of 2020. The revenue from online games rose 31% YoY to 37 billion yuan. The games business benefit from Tencent’s smartphone games Honor of Kings and Peacekeeper Elite. More people played Tencent’s games due to the lockdowns. The company’s online advertising revenue increased by 32% YoY to 17.7 billion
Generally, Tencent’s earnings report showed that the company recorded growth across its key businesses. For example, the fintech and business services division registered an increase of 22% YoY in its revenue to 26.5 billion yuan. The fintech unit houses Tencent’s popular WeChat Pay service. Walmart adopted Tencent’s WeChat Pay as the preferred mobile payment service at its retail locations in China.
Outlook signals difficulties in the advertising business
During Tencent’s earnings call to discuss the first-quarter results, the executives outlined a cautious outlook. The company expects headwinds in its advertising business in the current quarter. Tencent expects pressure in the business to come from advertisers reassessing their marketing budgets during the post-pandemic period. However, China’s digital advertising industry will likely keep growing and expand 8.4% to hit $113.7 billion this year.