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China tech

Tencent pumps profit into new investments despite antitrust pressure

Chinese tech group's earnings surged 65% on cloud and fintech growth

A Tencent display at the World Internet Conference: The Chinese tech group is "stepping up investment in areas including business services and enterprise software, high production value games and short-form video," CEO Pony Ma says.   © Reuters

HONG KONG -- Chinese technology group Tencent Holdings vowed to continue investing in new businesses despite greater regulatory scrutiny, while reporting better-than-expected quarterly results thanks to strong growth in its financial technology and business services operations.

For the three months to March 31, the company said group revenue rose 25% from a year earlier to 135.3 billion yuan ($21.0 billion), while net profit surged 65% to 47.8 billion yuan.

Despite Beijing's recent moves to rein in the influence of leading internet platforms, Tencent said it will continue investing to capture new opportunities in the internet industry.

"We are stepping up investment in areas including business services and enterprise software, high production value games and short-form video," Tencent founder and chief executive Pony Ma told investors in a conference call on Thursday.

Tencent's pledge comes as tech rivals including Alibaba Group Holding and Meituan spend money to grab market share in new business segments such as community group buying.

"The entire internet industry is undergoing a new round of additional investment in which investors and companies are prioritizing growth over profit," group President Martin Lau said. 

Tencent has made heavy investments in the costly businesses of community group buying and electric vehicles, Lau said, which will have an impact on the company's short-term profits. But the great growth potential also boosted the market valuation of the start-ups in which Tencent invested, which in total exceeded $200 billionat the end of the quarter.

Instead of boosting short-term transactions through subsidies, Ma said, the company will focus on the few areas mentioned where Tencent can be "an early mover and a shaper of industry evolution rather than playing catch-up later."

Meanwhile, Tencent said it will invest 50 billion yuan to establish a new sustainable social value organization to fund areas such as basic science research, education innovation, rural revitalization and carbon neutrality, as well as technology for senior citizens and public welfare.

"That's a strategic move, and that increased investment will actually continue," Lau said.

Lau was asked by an analyst when the investments are expected to yield a return.

"We will start to see some benefits over time," he said. "What's the timing, I think it's hard to predict. But I think it's fair to say, at least at this point, that the financial impact will probably be biggest as we start stepping into the investment."

Tencent also is expanding its short-video offerings to compete against ByteDance and Kuaishou Technology by adapting content from long-form video platform Tencent Video, which has 125 million subscribers.

Like Alibaba, which was fined 18 billion yuan by China's market regulator for violations of antimonopoly laws, Tencent is under greater regulatory pressure due to its large market share in online payments and social networking. Reuters has reported that authorities are preparing to fine the company at least 10 billion yuan.

Lau said the company met with China's financial regulators along with 12 other fintech businesses. They were urged to undertake an internal review and ensureall business is conducted through licensed entities and with more transparency.

"My understanding is it's quite focused on the size of the lending business, and making sure that there's no overlending or overborrowing by consumers right now," he said.

Tencent's quarterly growth was driven mainly by a 47% increase in revenue for the financial technology and business services segment, which comprises online payments and cloud services. It contributed 29% of the group's total revenue for the quarter, compared with 25% a year earlier.

Meanwhile, contributions from Tencent's value-added segment, which includes gaming as well as video and music subscriptions, declined to 54% of overall revenue from 58% a year earlier. Total gaming revenue grew 17% to 43.6 billion yuan thanks to the popularity of the group's mobile games.

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