Tencent stock price recovers as profit surges 89% in Q3

Shares of Tencent Holdings (HKG: 0700) gained 4.7% today to recover a portion of losses after the Chinese tech giant posted a profit of growth of nearly 90%.

Fundamental analysis: Another monster quarter

Tencent posted an 89% profit growth in the third quarter, thanks to its flagship game Honour of Kings and strong advertising results which helped it outstrip consensus estimates and send its shares surging. The gaming and social media behemoth thrived in the last quarter thanks to solid user base growth in China and abroad. 

During the first 10 months of this year, Honour of Kings posted a historical 100 million active users on a daily basis. The conglomerate reported a profit of 38.5 billion yuan ($5.8 billion) for the three months through September, beating consensus estimates of 30.81 billion yuan, according to Refinitiv. Tencent’s revenue climbed by 29% to 125.4 billion yuan.

The gaming giant is expected to release several new titles, including a testing rollout of League of Legends mobile version in Asia. Tencent managed to return to profitability in advertising after the coronavirus outbreak, thanks to strong performance in areas like education, internet services and e-commerce platforms.

The company said its revenue from cloud units and other operations were impacted by the persistent coronavirus pandemic that caused delays in rollouts of projects and new contract sign-ups.

“The year-on-year revenue growth rate was therefore lower than previous quarters, which we expect to be temporary in nature,” Tencent said.

Technical analysis: Shares recover

Shares of Tencent closed 4.72% up, compared to 0.22% drop in the Hang Seng index. Tencent’s stock recovered from a 7% decline on Wednesday when investors sold shares of technology and internet companies following the publication of an edict by Chinese regulators that wiped over $250 billions of dollars off Chinese tech giants. 

Tencent stock chart (TradingView)

Tencent share price is now caught in between the two short-term support and resistance levels at 560 and 630. Overall, shares of Tencent are down 6.1% this week.

Summary

Chinese tech giant Tencent Holdings reported an incredible 89% profit growth in the third quarter and beat forecasts, thanks to a surge in its user base and great performance in its blockbuster game Honour of Kings.

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