Tencent is finding ways to beat its gaming slump

Financial services and cloud computing are helping Tencent overcome a slump in its gaming business.

The Chinese tech company beat analysts’ estimates with a 17% jump in first quarter profit on Wednesday. Revenue for the first three months of the year rose 16% to 85.5 billion yuan ($12.4 billion).

Tencent is the world’s largest gaming company, but its core business was walloped by an unexpected regulatory crackdown on games in China last year. Beijing stopped approving new titles, leaving Tencent unable to make money from some of its most popular online games.

The ban was lifted in December, and after tweaking content to satisfy Chinese regulators, Tencent got the green light to start monetizing several titles this year.

Kenny Liew, an analyst with research firm Fitch Solutions, attributed the strong first quarter results to “the resumption of game approvals … and continued growth in its fintech and cloud segments.” Fintech includes online financial services like mobile payments, investment funds and credit scoring.

Revenue in the company’s online games business fell 1% to 28.5 billion ($4.1 billion) in the first quarter.

The big boost came from Tencent’s further expansion into online payments, and its push into internet business offerings such as cloud services.

Revenue from mobile financial services and business services came in at 21.8 billion yuan ($3.1 billion), up 44% compared to a year earlier.

The move into cloud services puts Tencent in direct competition with fellow Chinese tech giant Alibaba.

The e-commerce behemoth dominates cloud services in China, accounting for 43% market share in the first half of 2018, according to research firm IDC. Tencent is second, with 11%.

Alibaba and Tencent are two of China’s biggest tech companies, each with a market value of well over $450 billion. Shares in both companies were pummeled last year, hit by fears of China’s slowing economy, the US-China trade war and a broader tech sell-off. The gaming crackdown added to Tencent’s pain.

Both have staged recoveries in 2019. Tencent stock closed 1.2% higher in Hong Kong, and is now up 19% since January. Alibaba, which reports earnings on Wednesday in New York, is up nearly 28% so far this year.