Tencent posts impressive first quarter profit growth

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China's largest social media and gaming company posted a faster than expected 61 percent jump in net income last quarter as growth on mobile bounced back, outstripping estimates by nearly a third.

A major contributor to the bottomline was investments by Tencent, which brought in 7.6 billion yuan in gains.

Tencent has a hand in the two biggest games in the smartphone world today: Player Unknown Battlegrounds (PUBG) and Fortnite .

"Its margins were better than people expected", said Julia Pan, a Shanghai-based analyst at UOB Kay Hian.

Asia's second-most valuable listed company said on Wednesday net profit for the first quarter was 23.29 billion yuan (US$3.66 billion), beating the average analysts' estimate of 17.5 billion yuan.

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Tencent 700-HK shares in Hong Kong surged over 5 percent Thursday after reporting earnings that topped analyst expectations. Not only can this add to the moat and diversity of Tencent's operations, emerging rivals can also be turned into members of the group at an early stage.

Revenue rose 48 percent to 73.5 billion yuan, also surpassing estimates for 70.8 billion yuan. Adjusted earnings per share were 1.92 yuan, compared to the 1.94 yuan average of 14 analysts.

While the company results are a little short on the exact details of where the revenue comes from with regards its WeChat service, according to analysts, some of that revenue is driven by the services that are made available through the social media platform. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

"We expect the share price to bounce back after a period of weakness recently, but as game business prospects may not be as good as 1Q results seemed to indicate, we suggest not riding if the share price rebounds strongly", she wrote in a note. Tencent executives have signaled a willingness to sacrifice margins in favor of longer term growth in new businesses, though that would depend on growing and engaging a massive user base now primarily confined to China. "We will continue to invest in improving our own products as well as enabling services for our partners, in order to fulfil our mission of enhancing the quality of life through Internet services".

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