WeChat’s aggressive expansion comes at a cost for owner Tencent

WeChat: Taking over the world, one phone at a time.
WeChat: Taking over the world, one phone at a time.
Image: AP Images/Imaginechina
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The numbers: Not bad. Tencent, one of China’s biggest internet companies, reported second quarter profits of 3.68 billion yuan ($600 million), up 19% from last year. Analysts expected better though, forecasting profits of around 4 billion yuan. Total revenues were 14.3 billion yuan, up a third from the second quarter of 2012.

The takeaway: Tencent’s profits were lower than expected partly because it didn’t receive a special dividend from Mail.ru, in which it holds a 10% stake, and partly due to higher marketing costs for its social messaging app WeChat, which has signed up a sponsorship deal with soccer star Lionel Messi to build awareness outside of China. Monthly active users (MAUs) on WeChat grew to 236 million, up a solid 177% from last year, thanks to the aggressive expansion and marketing.

What’s interesting: Growth in online PC-based games, which account for half of Tencent’s revenues, appears to be slowing, up 1.6% in the second quarter versus 19.3% growth in the previous three months. WeChat, also known as Weixin in China, is growing quickly and is catching up with rival WhatsApp’s 300 million MAUs, but the question is how Tencent will actually make money from all those users.