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Tencent earnings preview: Games expected to drive Chinese tech giant

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: May 12, 2020

Chinese tech conglomerate Tencent will report first-quarter earnings on Wednesday after the Hong Kong market closes, and is expected to post earnings per share to rise 16% year-over-year in the quarter, lifted by blockbuster games, though advertising and payments could be weaker due to reduced business as a result of the coronavirus.

Analysts expect Tencent, China’s second-most valuable tech firm, to report revenues of 101.4 billion yuan ($14.3 billion) in the first quarter of 2020. It posted revenues of 85.6 billion yuan ($12.08 billion) in the first quarter of 2019

Analysts believe that Tencent’s gaming division would lift its first-quarter revenues. Two of its smartphone games titles namely “Honor of Kings” and “PeaceKeeper Elite” are expected to drive its strong first-quarter performance. Online gaming makes up over 28% of Tencent’s gaming revenues.

Brokers at Jefferies, said: “We expect Tencent to deliver a solid set of 1Q20 [first-quarter 2020] results with strong performance of smartphone games.” It expects Tencent’s online gaming revenues to spike 49% in the first quarter.

Shenzhen-based Tencent is facing competition from established players like NetEase as well as new entrants like TikTok owner ByteDance in the gaming market. Analysts at Guotai Junan Securities, however, expect “rich smartphone games pipeline” from Tencent for the rest of 2020.

While Tencent’s online gaming segment is expected to deliver strong results in the first quarter, the outlook for other segments isn’t that rosy. Analysts expect the coronavirus pandemic to weigh down Tencent’s advertising and fintech revenues.

Guotai Junan Securities said: “Media advertising is expected to remain under pressure due to the negative impact of COVID-19 and macro headwinds, even when facing loosened content regulation on the online video industry.”

As for Tencent’s fintech business, fewer people spent money in stores during the quarter due to the restrictions. However, analysts have differing views on the segment’s outlook. China Renaissance expects the segment to report a 11% year-over-year rise in revenues while Jefferies is forecasting a 24% growth.

According to Guotai Junan Securities, the pandemic might “postpone implementation of cloud related initiatives and would thus decelerate the Company’s cloud services revenue.”

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.