Testing times ahead for Tencent

Investors and analysts signaled early warnings on Thursday after Tencent Holdings Ltd announced further plans to invest in content and technology that could put a dent in its short-term gains.

Plowing into artificial intelligence, video and smart-retail related infrastructure could benefit Tencent's long-term prospects but could be a drag on imminent profitability, Asia's most valuable firm told investors on Wednesday, when it reported latest quarterly earnings with mixed results.

Price of the firm's Hong Kong-listed shares dipped 5.01 percent to HK$439.4 ($56) on Thursday.

Tencent beat market expectations by a wide margin on net profit, which almost doubled to market projections in part due to a faster-than-expected 12 percent slowdown in PC gaming sales, still a staple for Tencent.

"While total revenue growth of 51 percent was solid given such a high base, the magnitude of gaming revenues missed caught many by surprise," said Alicia Yap, an analyst at Citigroup Global Markets Inc.

Maintaining a "Buy" rating, the brokerage has lowered revenue from Yixin to ZhongAn Insurance, have helped it register gains and boost operating margins, the company said.

But after stripping out this category, operating margin has in effect slid from 29.4 percent a year ago to 26.8 percent, according to Tim Culpan, a seasoned technology columnist for Bloomberg.

Meanwhile, the company is diversifying its sources of income. Online advertising sales soared 49 percent, as Tencent became more adept at monetizing its iconic WeChat app that claims more than 1 billion users globally.

Social and other ads claimed more than two-thirds of the online advertising segment, as people spend more time on the ubiquitous app to read news, play games and pay for a plethora of online and offline services.

Tencent said it will plan big budgets to acquire video and subsidize payment adoption this year, while other areas earmarked for further investment include cloud services, artificial intelligence and smart retail.

Li Yujie, an analyst at RHB Group, said the major driver for growth in the next few years would be WeChat's monetization, which can take the form of smart retail, social commerce and social advertising.