[caption id="attachment_88013" align="aligncenter" width="720"] Source: Company reports/Coresight Research[/caption]   1Q19 Results Tencent reported 1Q19 revenues of ¥85.47 billion (USD 12.4 billion), up 16.2% year over year and below the ¥88.41 billion consensus estimate. Adjusted EPS was ¥2.19 (USD $0.32), up 14.2% year over year and beating the ¥1.99 consensus estimate. GAAP EPS was ¥2.84, up 16.8% year over year. Adjusted EBITDA was ¥35.6 billion, up 15% year over year. Capital spending was ¥4.5 billion, down 29% year over year. Results by Segment

• Value-Added Service (VAS) revenues were ¥49.0 billion, up 4.5% year over year.
  • Online game revenues were ¥28.5 billion, flat year over year. Social network revenues were ¥20.5 billion, up 13% year over year, driven by higher digital content revenue from live broadcast services and video-streaming subscriptions.
• FinTech and Business Services revenues were ¥21.8 billion, up 43.5% year over year, driven by higher revenues from commercial payment and cloud services.
• Online advertising revenues were ¥13.4 billion, up 25.1% year over year.
  • Social and online advertising revenues were ¥9.9 billion, up 34%, due to higher advertising revenue from Weixin Moments, Mini Programs and QQ KanDian.
  • Media advertising revenues were ¥3.5 billion, driven by higher contributions from advertising on the Tencent News Service.
• Other revenues were ¥49.0 billion, up 69.9% year over year.

Details from the Quarter Management offered the following comments on the quarter:

• Notable growth in the number of short videos uploads and shared by Weixin and QQ users.
• Reinvigoration of the game business with releases such as Perfect World Mobile (in China) and PUBG MOBILE internationally.
• Though in an early stage, the FinTech and cloud services are generating substantial revenues.
• The company is building solid foundations for the consumer and industrial internet domains.

Rationale for the creation of the new business segment include the following:

• The growing need for digital payments and financial services from opportunities in the industrial internet.
• Synergies between new services and existing services, such as communication and social platforms and peer-to-peer payment services, and between Mini Programs and WeChat Work services.
• The scale and experience from substantial organic investments in these areas.

In payments, the company built the infrastructure for PC payments in 2015 and integrated it with Weixin and launched social payments in 2014. Tencent launched its merchant adoption campaign in 2016, which it enhanced with the use of WR codes and WeChat Mini Programs. The company deployed cloud infrastructure to serve its activities in games and video, which it expanded into the finance, retail, municipal services, tourism and healthcare verticals. Operating metrics (figures in millions): Other highlights:

• Communications and Social—Users become more engaged with the QQ platform and their MAU grew by double digits. China Internet users are increasingly using Weixin’s and QQ”s in-app camera functions to record short videos, which they share in chats, group chats and timelines.
• Online Games—Cash receipt for games grew 10% year over year, however reported revenues decreased 1% due to the company’s revenue deferral policies. Smartphone game revenues (including games and revenues attributable to social networks) were ¥21.2 billion, down 2% year over year due to fewer new game releases.
• Digital Content—Tencent video subscriptions were 89.0 million, up 43% year over year, driven by popular self-commissioned IP content.

Implications for Retail Tencent continues to enhance its tools for retail such as its WeChat, WeChat Pay and other platforms and is now leveraging this platform to expand into fintech and into other verticals. Outlook Management cited the fintech and cloud businesses as examples of Tencent’s strategy to broaden its revenue streams and generate long-term sustainable profit in its journey from communication services to games, advertising, digital content services, and most recently, Fintech and Business Services. Current 2019 consensus estimates call for revenues of ¥400.6 billion (up 28.2%) and EPS of ¥9.45 (up 16.7%).