(Bloomberg) — Tencent Holdings Ltd. reported better-than-expected sales after pandemic-induced lockdowns helped spur growth in its suite of online offerings from gaming to social media.The WeChat operator’s revenue rose 26% to 108.1 billion yuan ($15.2 billion) after gaming sales rose at their fastest pace since 2017 during the coronavirus-stricken March quarter. That compared with the average estimate of 101.07 billion yuan. Net income rose 6% to 28.9 billion yuan from a year earlier, when Tencent booked an 11 billion yuan one-time gain on investments.Tencent, which never offers precise financial guidance, warned that the boost to its gaming business from Covid-19 could be short-lived, while marketing budgets remain stretched. “We expect in-game consumption activities to largely normalise as people return to work, and we see some headwinds for the online advertising industry,” the company said in its filing.Shares in Prosus NV, the entity controlled by major shareholder Naspers Ltd. that serves as a proxy for Tencent, rose more than 2%.Tencent is among the most resilient of players in a Chinese internet sector emerging from the worst of the outbreak. It’s gained more than $42 billion in market value since Covid-19 first broke out, defying a global market rout and a record Chinese economic contraction. A surge in social media and gaming traffic drew new ad revenue to help offset shrinking traditional online marketing budgets.“Brands weren’t sure about how the virus would impact their future, so the first thing they did when they put marketing budgets on hold was to stop buying ads on news portals and video sites, where conversion rates are low,” Connie Gu, an analyst at Bocom International, said before the earnings announcement. Social ads were a bright spot in the quarter thanks to increased inventory on WeChat Moments, the messaging apps’ semi-public feed, she added.But longer term, the world’s largest game publisher is contending with renewed challenges from the likes of ByteDance Ltd. and Alibaba Group Holding Ltd.While Tencent’s core online entertainment business must convince consumers to keep splurging on aging cash cows like Honor of Kings, rival ByteDance is luring users and advertisers away and into its viral social networks. It’s also preparing to enter hardcore gaming.Revenue at Tencent’s burgeoning fintech division slid from the previous quarter after merchants shut their doors, but began recovering from April as China went back to work. And as feared, lockdowns disrupted its cloud service by postponing projects and hampering efforts to win over new customers.It’s in cloud and fintech where Tencent faces possibly its fiercest battle with Alibaba. Parts of those units, which made up more than a quarter of the company’s revenue in 2019, went into hiatus during Covid-19 but are expected to bounce back over 2020 and resume driving its longer-term expansion. Alibaba-backed Ant Financial’s Alipay is also seeking to attract more merchants and transactions in part by replicating the lite-app model WeChat pioneered.What Bloomberg Intelligence SaysThe company’s social-ad business could continue to grow strongly, despite challenging industry conditions, on high demand and new inventory released in mid-February, but its fintech and business services segment could deliver slower growth as offline payments declined during the pandemic and some cloud computing projects were delayed.\- Vey-Sern Ling and Tiffany Tam, analystsClick here for the research.(Updates with details from the results announcement throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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