With Luxury Ads on WeChat and New Mobile Games on the Rise, Tencent’s Future Looks Bright

    Chinese tech giant Tencent is set to release its Q4 2018 earnings results on Thursday morning, and investors anticipate a bright outlook.
    Chinese tech giant Tencent is set to release its Q4 2018 earnings results on Thursday morning, and investors anticipate a bright outlook. Photo: Shutterstock
    Matthew LubinAuthor
      Published   in Finance

    The last of China’s tech giants is set to release its fourth quarter 2018 earnings on Thursday morning, and investors expect positive news from Tencent Holdings following a year that saw its stock price plummet.

    Last year the tech giant and parent company of WeChat was one of the biggest losers among China’s major stocks, and part of those losses were attributed to Chinese government regulations that prevented the company from releasing new mobile games, although it should be noted that shares have regained much of their losses since the start of the year. Prior to the government freeze, 40 percent of the company’s revenue came from video games. Investors will likely expect a positive outlook as China has lifted its freeze on approving new mobile games, which should benefit Tencent in the long run.

    Tencent surprised investors with a jump in advertising revenue on WeChat in Q3 2018 to offset the losses from China’s video-game approval freeze that lasted nine months and ended last December. With those approvals restarting in 2019, there will likely be more of a focus on the company’s outlook than fourth-quarter performance. But the forecast for the year may be cautious as Tencent and investors don’t know if or when China may alter regulations regarding video games.

    For now, the good news is that Tencent has had two video game titles approved since January, and now the tech giant, alongside video game maker Activision, has announced that they’ll bring a new game from the blockbuster "Call of Duty" series titled "Call of Duty: Mobile" to Android and iOS devices across Europe and the Americas. The company also continues to expand its catalog of WeChat mini-programs, many of which are connected to e-commerce channels that benefit WeChat Pay.

    While Tencent awaits even more video game approvals from the government, it will look to placate investors with continued growth in ad revenue and WeChat Pay usage. The company hopes it can build on the success of luxury advertising within the WeChat ecosystem, as about 90 percent of the companies that placed ads on WeChat Moments last year used the tag “luxury” for their products, according to company data. Tencent is making it more difficult for official accounts to reach customers on that platform, pushing companies are to move more towards paid posts.

    Consensus estimates net profits to total 2.8 billion (RMB 18.5 billion) for Q4 2018, according to FactSet. Analysts also predict revenue to reach 12.4 billion (RMB 83.5 billion), up from 9.89 billion (RMB 66.4 billion) the previous year.

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