The ad business could be a cash cow for China’s large tech company, Tencent’s holding Ltd. The company said today that it saw a big surge in revenue for the fourth quarter.
WeChat, Chinese social media, is one of its most profitable resources. Chinese mobile users spend more than an hour to use the App, WeChat. This makes the company generate profits from advertising market. Even as China’s economy slows down, the size of China’s online advertising market by revenue is expected to almost double to 410.5 billion yuan ($62.9 billion) by 2018 from an estimated 209.7 billion yuan last year, according to forecasts from research firm iResearch.
Furthermore, the technology company is building new businesses on WeChat, including gaming, social advertising akin to Facebook and mobile banking. Although Tencent does not disclose whether it is making money from its mobile payments business, the business might help the company grow in the scale in the fast growing payments systems in China.
“The key is really how fast Tencent can grow its advertising revenue,” said Tony Chu, a portfolio manager at U.S. asset-management firm RS Investments, which owns Tencent shares. “People see what Facebook has already done. The expectations are high.”
However, compared with its counterparts in the U.S., the Chinese company’s ad revenue is still much smaller than Facebook’s. Facebook posted a 57% jump in fourth-quarter ad revenue to $5.64 billion, accounting for 97% of its total revenue. In China, Baidu earned approximately $2.72 billion in ad revenue in the fourth quarter. Baidu’s number is about triple of Tencent’s.
Still, Tencent is seeking opportunities to expand its ad business. “We are going to build this business gradually and patiently,” President Martin Lau said. “We believe this opportunity is enormous.”