Tencent Profit Rises 61% on China Social Networking

Source: Bloomberg By Mark Lee

Aug. 11 (Bloomberg) -- Tencent Holdings Ltd., China’s biggest Internet company by market value, said second-quarter profit rose 61 percent, after adding users for its social networking services and increasing advertising sales.

Net income climbed to 1.92 billion yuan ($283 million) from 1.19 billion yuan a year earlier, Tencent said in a statement to the Hong Kong stock exchange today. That compares with the 1.89 billion yuan average of eight analyst estimates compiled by Bloomberg.

Tencent, whose QQ Internet-chat software is 18 times more popular than Microsoft Corp.’s MSN in China, introduced messaging and games services to extend its lead in China. That helped boost its number of active QQ accounts to above 600 million, more than the combined population of the U.S., Japan and Germany.

“The growth in social-networking services and online advertising was quite good,” said Frank He, who rates Tencent shares “buy” at BOC International in Hong Kong. “Growth in online games will probably slow in the second half, but the market has been aware of this for some time.”

Tencent shares fell 4.1 percent to HK$148.70 in Hong Kong trading today before the earnings announcement, and have declined 12 percent this year.

The Chinese company, whose biggest shareholder is South Africa’s Naspers Ltd., had 612.5 million active user accounts for its QQ instant-messaging service at the end of June, compared with 568.6 million three months earlier, it said.

Value-Added Services, Advertising

Sales of Internet value-added services, including online games and QQ-related subscription fees, rose to 3.58 billion yuan from 2.16 billion yuan, Tencent said. Online advertising sales increased to 397.5 million yuan from 243 million yuan.

China had an estimated 420 million Web users at the end of June, an increase of 36 million from six months earlier, according to the state-backed China Internet Network Information Center, which licenses online domain names.

Tencent controlled 77 percent of China’s instant-messaging market as of December 2009, according to Analysys International. Microsoft’s MSN service had 4.2 percent market share, the Beijing-based researcher said.

Tencent founder and Chief Executive Ma Huateng was ranked No. 16 on the Hurun Report’s 2009 list of China’s richest people, with an estimated fortune of $3.6 billion, making him the richest person in the country’s Internet industry.