Tencent reports over a billion WeChat users in Q1

Tencent reports over a billion WeChat users in Q1

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth.

Revenue rose 48 percent to 73.53 billion yuan, beating the 70.93 billion yuan average estimate of 14 analysts, according to Thomson Reuters data.

Net profit came in at 23.29 billion yuan versus an estimate of 17.5 billion yuan.

"The most important thing is the halo effect coming through in gaming", Neil Campling, co-head of the global thematic group at Mirabaud Securities, told CNBC by phone on Wednesday.

China's largest social network and gaming company defied fears that outsized spending would hammer margins. Last month, Tencent partnered with U.S. developer Epic Games to launch Fortnite in China.

The overall online games business was boosted by two major games.

Fortnite is the other game that is driving a strong quarter. It has developed a mobile version of the former that is available globally, while it owns almost half of Epic Games, the developer of Fortnite. It is also on mobile too.

Earlier this month, an online essay criticised Tencent's apparent focus on investments over product innovation, sparking a heated debate in China.

"What you are seeing is the "Fortnite" effect, bringing lots of new gamers into e-gaming arena", Campling said. That's still not cheap: But investors can now expect a return to the good old days of Tencent's shares heading ever higher.

In the fourth quarter of 2017, the operating margin actually fell. That's despite the company reporting that capital expenditure in the quarter was up 200 percent to 6.3 billion yuan.

Other earnings drivers for Tencent included a video subscription service that is similar to that of Netflix.

The results are likely to please Tencent's army of investors. Total video revenues were 75 percent higher. Company president Martin Lau Chi-ping had warned in March during its 2017 earnings call that this year Tencent would aggressively step up its investments in long- and short-form video content, digital payments, cloud services, artificial intelligence and smart retail, even though it could harm the company's profitability in the short term.

The social media company saw its monthly active users for its flagship WeChat app pass the 1-billion mark for the first time during the quarter, hitting 1.04 billion users worldwide by the end of March.

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