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China's Tencent, While Known for WeChat, Gets a Boost From Gaming

WeChat users near the 1 billion mark

May 18, 2017 | Advertising & Marketing

China’s Tencent is on a roll. The company’s Q1 2017 revenues surpassed analyst expectations, climbing 55% year over year to RMB49.55 billion ($7.2 billion).

According to Kantar Millward Brown, Tencent continues to rank as the No. 1 brand in China, with a value of $106.18 billion in 2017.

Top 10 Brands in China, Ranked by Brand Value, 2017 (billions and % change)

Tencent is probably most often mentioned in the same breath as WeChat, and not just because its WeChat’s parent company. The massively popular messaging platform has grown in scope to resemble more of a mobile operating system than anything else.

WeChat is closing in on 1 billion users worldwide, reporting that it now has 938 million monthly active users (MAUs). However, Tencent may face a looming challenge in continuing to grow its WeChat user base, as the service has not yet caught on among non-Chinese-speaking populations.

Still, Tencent is reaping substantial dividends from WeChat’s popularity. While the company had initially focused on generating revenues on WeChat by taking a slice of transactions carried out on the platform, it has more recently turned to ramping up WeChat’s advertising offerings.

Tencent noted in its earnings report that WeChat, or Weixin as it is known in China, was one of the key contributors to a 47% year-over-year increase in online advertising revenues generated in Q1 2017. In particular, advertising on WeChat’s Moments feed, along with its “official accounts” for brands and other businesses, has helped to drive higher revenues from that part of the company.

But online advertising revenues, which totaled RMB6.89 billion for the quarter, are still dwarfed by earnings generated by Tencent’s gaming business.

The company pulled in RMB22.81 billion from online games during the first three months of the year, thanks to successful titles played on mobile devices, such as Honour of Kings, as well as from so-called PC client games played natively on a PC like League of Legends.

In fact, while much press attention is focused on the runaway success of WeChat, Tencent has employed a savvy gaming business strategy to bolster its holdings in the sector. The firm recently expanded its stake in US-based gaming firm Pocket Gems and also owns substantial shares in Riot Games, which owns League of Legends, as well as Finland-based Supercell, creator of the popular mobile game Clash of Clans.

Rahul Chadha

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