Tencent Posts 70% Surge in Profit, Buoyed by Revenue From 'Honor of Kings' -- 2nd Update

By Alyssa Abkowitz in Beijing and Austen Hufford in New York Features Dow Jones Newswires

Global top-grossing mobile game "Honor of Kings" is the gift that keeps on giving for Tencent Holdings Ltd., the Chinese internet behemoth and world's biggest videogame publisher by revenue.

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The Shenzhen-based company reported a 70% surge in profit to 18.23 billion yuan ($2.7 billion), buoyed by revenue from "Honor of Kings" and other mobile games; triple-digit growth in payment services; and a solid increase in online advertising.

The company beat analyst estimates by more than 30%, reporting overall revenue of 56.6 billion yuan ($8.45 billion), a 59% increase from a year earlier, and its fastest revenue growth in seven years.

Tencent shares were up about 1.4% in early trading in New York.

"Honor of Kings," which has been the No. 1 global mobile game since March according to App Annie and could debut as early as this fall in the U.S., helped push mobile-game revenues up 54% year over year, along with new titles in the role-playing genre.

PC games also increased 29% in revenue from the same period a year earlier, but management said it expects revenue growth rates to decelerate in future quarters.

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Going forward, analysts said a time limit of playing "Honor of Kings" imposed on minors in early July shouldn't have a material impact of the game's revenue, as less than 5% of "Honor of Kings" gamers are below 12 years of age, according to estimates from Citi Research.

Tencent imposed the limit amid criticism that children were falling asleep in school because they had played "Honor of Kings" late into the night.

The company's social advertising revenues, which mainly come from the widely popular WeChat social media app, rose by 61% to 6 million yuan. The company now has 963 million monthly active users on WeChat, an increase of nearly 20% year over year.

Online advertising also helped Tencent's earnings, propelled by more users watching the firm's TV dramas and variety shows -- though Tencent President Martin Lau said it would be quite some time before the video business breaks even.

Tencent also expanded its self-service ad platform to include first-tier cities for putting promotions in WeChat's moments news feed, which boosted ad sales 55% from the same period a year prior. Mr. Lau said there was no urgency for increasing promotions quickly, saying the company is "airing on the very conservative side" in terms of upping ad inventory.

Tencent's Cloud operations, an area that Chief Executive Pony Ma has indicated is a priority, also had triple-digit growth. While providing cloud computing for gaming and video internet startups is Tencent's sweet spot, analysts say it must pivot to provide solutions for larger enterprises to compete with Alibaba, Baidu and Huawei.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Austen Hufford at austen.hufford@wsj.

(END) Dow Jones Newswires

August 16, 2017 10:49 ET (14:49 GMT)