Internet giant Tencent might be most known for its loss-making WeChat, but that chat tool is effectively used to generate revenue through gaming, says e-commerce expert Matthew Brennan on QZ. The company reported a stellar performance of the second quarter.
Matthew Brennan, who tracks WeChat’s changes at China Channel, points to the success of Honor of Kings as an example of WeChat’s indirect influence on Tencent’s revenue growth. “When you go into the game, it becomes all about playing with your WeChat friends, and looking at their scores and achievements,” he says. Honor of Kings is currently ranked the top-grossing game in China’s iOS App Store(registration required), and four other Tencent titles fill out the top 10.
The categories Tencent uses for revenue do little to help with a simple but perplexing question: How much money does WeChat actually make for Tencent? Many analysts believe the short answer to be: not much in the past, but that will quickly change…
Brennan, pointing to WeChat’s low take on payments (Stripe and PayPal each charge about 3%) and its aggressive discounts, speculates it’s a loss leader. Tencent executives, meanwhile, have downplayed its role in making money for the company. “We consider payment at this point in time as to [sic] infrastructure service rather than a service that generates profit for us. And I think that status will maintain for quite some time,” said Lau when Tencent reported on the final quarter of 2016…
Brennan agree(s) that while WeChat’s direct contribution to Tencent’s growth has been minimal to date, that will likely change as soon as next year. If revenue growth from smartphone games plateaus, the company will then roll out ads and payment-related services more aggressively. That means that Tencent’s enormous valuation—approaching $400 billion—will likely only get bigger.
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