Tencent has built success as China’s biggest online-games company and the operator of the WeChat and QQ messaging and social-networking applications.
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Tencent has built success as China’s biggest online-games company and the operator of the WeChat and QQ messaging and social-networking applications.


Photo:

Bloomberg News

By

Juro Osawa

March 17, 2016 5:50 a.m. ET


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Chinese Internet giant Tencent Holdings Ltd.
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said its net profit grew 22% in the fourth quarter, helped by its solid online-games business and a surge in advertising revenue.

The Shenzhen-based company said its net profit for three months ended Dec. 31 rose to 7.16 billion yuan ($1.10 billion) from 5.86 billion yuan a year earlier. Revenue increased 45% to 30.44 billion yuan, from 20.98 billion yuan a year earlier.

Heard on the Street

In the quarter, Tencent’s revenue from online games—its biggest source of revenue—grew 33% to 15.97 billion yuan, thanks to strong demand for smartphone games. But the company recorded faster growth in its online advertising revenue, which more than doubled from a year earlier to 5.73 billion yuan from 2.63 billion yuan. Tencent’s ad revenue accounted for 19% of its total revenue for the quarter, up from 13% a year earlier.

Tencent has built success as China’s biggest online-games company and the operator of the WeChat and QQ messaging and social-networking applications. As the market for online games matures after years of explosive growth, the company is scrambling to create a new engine for growth by pushing further into advertising. Investors say they are counting on Tencent’s ability to build a lucrative ad business on top of its social platforms by taking a page from Facebook Inc.
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’s playbook.

Tencent, which launched WeChat in 2011 and kept it ad-free for years, began experimenting with some banner ads in 2014. Last year, it started showing ads on the app’s Facebook-like Moments section where users see their friends’ updates and photos. In February, the company opened up WeChat’s Moments to effectively all advertisers by making it possible to apply for ad slots online, taking another step toward creating a broader ad platform. Previously, WeChat mostly worked with major brands by negotiating sizable ad deals individually.

Because WeChat is already so widespread in China and adding more users will likely become harder, Tencent needs to figure out how to make more money off the platform, investors say. In the fourth quarter, WeChat had 697 million monthly active users, up from 650 million in the previous quarter, Tencent said.

Write to Juro Osawa at juro.osawa@wsj.com

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