Tencent falls short in Q2

Tencent Holdings Ltd, China's biggest Internet company, reported lower-than-expected second-quarter results on Wednesday as higher marketing costs for its fledgling messaging and social media app WeChat eroded earnings.

Net profit rose 18.4 percent to 3.7 billion yuan ($601 million). the company said in a filing to the Hong Kong stock exchange. But profits fell short of the consensus of 3.9 billion yuan from analysts surveyed by Bloomberg News and 4.1 billion yuan among those polled by Reuters.

Group revenue in the second quarter rose 36.6 percent to 14.4 billion yuan.

Growth in the second quarter was mainly driven by the online game and advertising businesses, Pony Ma, chairman and chief executive officer of the Internet conglomerate, said in the statement.

Revenues generated from online advertising and e-commerce transactions hit 1.3 billion yuan and 2.2 billion yuan, respectively, during the second quarter, up 52.7 percent and 15.0 percent over the previous three months.

Marketing costs jumped during the period, accounting for 9 percent of revenues compared with 6 percent a year earlier, as the company stepped up marketing activities for WeChat, also known as Weixin, in international markets, according to Tencent.

In a conference call on Wednesday, Tencent President Martin Lau said that Tencent will continue aggressive international marketing.

WeChat had 235.8 million monthly active users as of June 30, up 21.3 percent from the previous quarter, according to the statement.

India, Indonesia, Malaysia and Singapore are all targeted markets where WeChat aims to increase its user base, according to Lau.

In the latest version of WeChat released this month, the company integrated features such as online games, stickers and an in-app payment system, an attempt that shows its ambitions in monetizing the app in the future.

But that's just the beginning, Ma Yuan and Gu Xinyu from BOCOM International wrote in a report last week.

"Therefore, we do not factor in much revenue contribution from payments at the moment, as we believe Tencent is focusing on building up the ecosystem at the current stage."

"We believe WeChat has the potential and capability to develop its own e-commerce platform in the future," the BOCOM International report said.

Linus Yip, a Hong Kong-based strategist from First Shanghai Securities Ltd, believes the long-term prospects for e-commerce and social mobile platforms remain positive in China.

"Tencent's overall performance still stands out, and profits derived from its primary and related services are likely to be sustained in the future," said Yip. "We've heard bearish views on the shares in the market after gaining substantially over the year, but I believe the fundamentals of the company remain solid," Yip added.