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Tencent’s Earnings Show the Strength of the Chinese Consumer

Images Of Tencent Applications As Second Quarter Earnings Are ReleasedImages Of Tencent Applications As Second Quarter Earnings Are Released

The half of China’s economy that hardly shows a hint of slowdown: consumers.

Tencent, one of the squarely consumer-facing companies in China, released fourth-quarter earnings yesterday that blew past rosy analysts’ predictions: Sales grew 45% from the year before, to 30.4 billion RMB, and non-GAAP net income rose 38% to 8.9 billion RMB. The stock jumped almost 4% on the news, capping a 20% rise over the past year.

The tech giant that has gotten used to being overshadowed by Alibaba (BABA) runs a Facebook-like social network complete with ubiquitous messaging system WeChat, a fast-growing online payments business that probably handled $46 billion transactions this January, as well as the largest online games platform in China, which contributes just over half of Tencent’s sales; that division grew revenues 33% in the quarter.

Tencent is the company American entertainment and media companies see as a potential partner in a tough China market with growing restrictions on media and increased censorship.

Mobile video views on Tencent’s platform, for example, doubled during the quarter thanks in part to streaming deals for NBA games and HBO shows.

As Tencent follows Facebook’s advertising model and rolls out more display ads and short videos on WeChat—previously it was reliant on gaming revenue to drive profits—analysts are almost entirely bullish. Like Chi Tsang of HSBC in Hong Kong, who predicts rising profits and a 25% jump in the stock price over the next year.