Tencent to make fewer equity investments on profit concerns

Tencent Holdings Ltd, China's biggest Internet company by market value, may reduce its equity investments this year after costs from acquisitions in online games and e-commerce eroded earnings from social networking and instant-messaging service fees, a company official said Thursday.

"The pace of investments in the future may be slower," said Chen Huifen, Tencent's general manager of investor relations.

Tencent spent more than 15.3 billion yuan ($2.36 billion) on several equity investments in 2011 and lost 24.25 million yuan, according to the company's fourth-quarter financial report released late Wednesday.

"We will be very careful in controlling the pace of our investments, and we want to use our money more smartly," Tencent chief executive Pony Ma Huateng was quoted yesterday by Bloomberg as saying.

Still, it's important for Tencent to make long-term investments rather than focus on "short-term profit," he noted.

The company would seek to complete "at least 10" deals this year, Tencent president Martin Lau disclosed.

Tencent posted an annual profit growth of 27 percent in 2011, the weakest since 2005, after it aggressively purchased stakes in Los Angeles-based Riot Games Inc, Beijing-based e-commerce site OkBuy and group-buying site ftuan.com last year.

The company paid $231.5 million in cash to buy a controlling stake in Riot Games, developer of video game "League of Legends", last February. The acquisition contributed to an 86 percent surge in full-year general and administrative expenses, Tencent said.

Besides, it spent $50 million to buy a stake in OkBuy and more than $30 million in Ftuan.com, in addition to investing in Internet travel operator eLong Inc and security software vendor Kingsoft Corp.

"The moves show that Tencent is strategically seeking ways to diversify its revenue streams and maximize profits as its profit growth has been sliding for three years," said Cheng Hongyu, an Internet analyst at Beijing-based Internet research center iResearch.

"Investment projects in gaming and e-commerce would become Tencent's blockbusters in the long run because both sectors are expected to maintain their upbeat momentum despite temporary stagnation," Cheng noted. "But the company will need to integrate some of the assets it acquired."

Tencent's fourth-quarter sales of Internet value-added services, including online games and social networking products, rose 46 percent on year to 6.4 billion yuan in 2011, the company said in a statement to the Hong Kong Stock Exchange on Wednesday.

The company's shares rose 3.89 percent to close at HK$208.4 yesterday in Hong Kong trading.