HONG KONG, China — Tencent Holdings Ltd., China’s largest Internet company by market value, posted earnings that missed analyst estimates after boosting its e-commerce and game spending to compete against Alibaba Group Holding Ltd.
Net income rose to 3.91 billion yuan ($631 million) in the three months ended Dec. 31 from 3.46 billion yuan a year earlier, the Hong Kong-listed company said in a statement today. That compares with the 4.1 billion-yuan average of 17 analyst estimates compiled by Bloomberg.
Tencent is trying to capture the consumer shift to mobile devices as it adds new games and services to WeChat to draw revenue from the free message application’s 300 million users. Billionaire Chairman Ma Huateng is counting on its popularity to win a bigger slice of China’s 618 million Internet users from Alibaba and Baidu Inc. as it expands in e-commerce and online finance.
“Revenue growth from old games such as ‘Cross Fire’ and ‘League of Legends’ was not as impressive,” said You Na, an analyst at ICBC International Securities Ltd. “The online gaming industry is facing a slowdown in growth.”
Shares of Tencent fell 1.8 percent to close at HK$567.50 in Hong Kong. The Shenzhen-based company’s shares have gained 15 percent this year, compared with a 7.5 percent drop for the city’s benchmark Hang Seng Index.
Revenue rose 40 percent to 17 billion yuan.
Selling and marketing expenses surged 39 percent from the September quarter as the company pushed its e-commerce, WeChat and game platforms.
More than 84 percent of China’s Internet users regularly access instant messaging, making it the most popular online app in the country, followed by search engines with about 80 percent usage, according to data compiled by Bloomberg.
Recent deals have highlighted the potential value of WeChat. Last month, Facebook Inc. agreed to pay as much as $19 billion for rival message service WhatsApp Inc., which has 450 million users. Rakuten Inc. agreed to buy message and calling app Viber for $900 million.
WeChat, known as Weixin in Chinese, may be worth as much as $64 billion given the potential for the service to be monetized, Elinor Leung, an analyst at CLSA Ltd., said in a March 10 report.
Competition among Internet companies is heating up as Alibaba kicked off the process for an initial public offering in the U.S. on March 16. Chinese Internet companies led by Alibaba and Tencent have announced 48 acquisitions and investments with a value of $19.7 billion since 2012, according to data compiled by Bloomberg.
Earlier this month, Tencent agreed to buy a 15 percent stake in Chinese e-commerce website JD.com Inc. and transfer some of its own assets to build a stronger competitor to Alibaba. In February, it acquired 20 percent in Dianping, the operator of a Yelp-like website in China, to strengthen location-based service.
While Tencent has been expanding its online financing, the move has come up against a regulatory challenge. China’s central bank last week blocked plans by Tencent and Alibaba to offer virtual credit cards as the government tried to tighten restrictions on online financial products.
The People’s Bank of China also suspended the use of so- called Quick Response codes for payment purposes. QR codes have been a popular feature on WeChat as part of Tencent’s push for more commercial applications for the service such as allowing users to buy game services and investment products.
Chinese central bank draft rules regulating the amount of money that payment accounts can spend and transfer could also affect Tencent’s third-party payment system.
Tencent said March 18 through one of its official WeChat accounts that it submitted feedback on the draft rules with the central bank, including its view that the company’s investment platform isn’t subject to the proposed regulations because users transfer money directly from their bank accounts.
With regulatory risks pending, investor concerns on WeChat’s monetization potential could affect the company’s shares in the near term, Alicia Yap, an analyst at Barclays Plc in Hong Kong, said in a March 17 research report.
Since the third quarter, Tencent has launched 11 games on the WeChat platform and each was ranked highly in the app stores of Apple Inc. and Google Inc.’s Android operating system, Yap said.
By Lulu Yilun Chen; Editors: Michael Tighe, Robert Fenner, Terje Langeland