Tencent Earnings: What to Watch

Chinese gaming and social-media giant Tencent Holdings Ltd. reports its third-quarter earnings after the market closes in Hong Kong on Wednesday. Here's what you need to know.

EARNINGS FORECAST: Analysts polled by S&P Global Market Intelligence expect Tencent to report earnings of 15.7 billion yuan ($2.36 billion), a 48% increase over the 10.6 billion yuan earned during the same period last year. Tencent hasn't provided earnings guidance.

REVENUE FORECAST: Tencent's quarterly revenue is expected to reach 61 billion yuan, up from 40.4 billion yuan a year earlier, boosted by strong mobile-gaming revenues, increased ad sales and mobile-payment growth.

WHAT TO WATCH:

GAME ON: The bulk of Tencent's earnings still comes from online gaming, and the company's mobile games continue to dominate the domestic market. Tencent had five out of the top 10 grossing games in Apple's app store in China in July, and four of the top 10 in August and September, according to App Annie and Citi Research. Citi analysts expect smartphone-game revenue to jump 61% from a year earlier to 15.9 billion yuan. Analysts say Tencent's pipeline remains strong, with several new mobile games currently in beta testing, and are watching for the imminent U.S. debut of "Arena of Valor," adapted from its Chinese hit game "Honor of Kings."

AD IT UP: Ad sales on Tencent's platforms, including on its WeChat social network, are likely to have risen 45% over the past year to 10.8 billion yuan, according to Credit Suisse estimates. Tencent has introduced advertising to its platforms gradually to avoid irritating users with a sudden barrage, but analysts expect ads to generate more earnings in the future. Last week, Tencent said it would be increasing ads on its Tencent News and Tencent Video platforms. In September, Tencent launched shopping accounts on QQ, one of its social media platforms, where subscribers can follow e-commerce companies and brands to receive promotions once every four days.

PAY PER VIEW: Tencent is locked in fierce competition with rivals Baidu Inc. and Alibaba Group Holding Ltd. over video streaming, and is spending heavily on content to woo more users. Last week, the company's video unit previewed more than 200 new shows and movies for 2018. Analysts are looking for an increase in video-subscription revenues after the company purchased big hits during the fiscal third quarter, and Tencent Video recently surpassed Baidu's iQiyi in terms of mobile monthly active users, according to QuestMobile. Tencent Video had 43 million paid subscribers at the end of September, more than doubling from 20 million in November 2016.

FINANCIAL FORAYS: Tencent's mobile-payment service, WeChat Pay, now has a 39% market share in China, up from 32% a year ago, closing in on Alibaba-backed Alipay's 54% market share, according to data from Analysys. Tencent doesn't break out the revenues of WeChat Pay, but it makes money by taking a cut of each transaction, and continues to expand its offerings by adding more products and features--most recently launching a tool for immigrant workers in Hong Kong to send remittances home. Analysts expect management to offer insight on payment growth.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com

(END) Dow Jones Newswires

November 13, 2017 07:28 ET (12:28 GMT)