By Melanie Lee
(Reuters) - Tencent Holdings, China's biggest Internet company by revenue, said on Wednesday its quarterly profit rose by its fastest pace in a year as sales got a boost from its online games segment despite a slowing Chinese economy.
Tencent and its rivals have been rapidly expanding in Internet segments such as media and e-commerce to tap fresh revenue streams, heating up the battle to draw users to their platforms. In the online games business, which generates about half of its overall revenue, Tencent last month linked up with Activision Blizzard to bring "Call of Duty" to China.
Tencent said its second-quarter net profit rose 32 percent from a year earlier to 3.1 billion yuan ($492 million), its biggest rise since the first quarter of 2011. The result was roughly in line with the average estimate of 3 billion yuan in a Reuters poll of eight analysts.
Revenue rose 56 percent to 10.53 billion yuan, above the average forecast from nine analysts for 10.1 billion yuan.
Online gaming revenue at Tencent, also China's largest online game operator, rose 53 percent from a year earlier to 5.6 billion yuan, according to a Reuters calculation. From the previous quarter, online games revenue rose a modest 4.6 percent due to seasonal factors with students busy taking exams in June.
A bright spot in Tencent's results was online advertising revenue, which soared 72 percent to 879.7 million yuan, contributing about 8 percent of total revenue.
"We delivered another solid set of revenue and earnings results during the second quarter of 2012 despite a more challenging macro environment," said Tencent's Chief Executive Pony Ma in a statement.
Tencent, which also runs China's largest online messaging platform, QQ, and popular Internet portals, Qzone and Pengyou, said its e-commerce revenue rose 14 percent from the previous quarter to 857.5 million yuan.
Tencent, which started as an instant messaging service in the late 1990s, and other cash-rich Chinese Internet companies have been making a push outside their core businesses in search of fresh revenue sources, encroaching each others' turf as they look to attract users.
Tencent in June bought a minority stake in Epic Games, a developer of 3D game engine technology, and in July purchased a stake in financial news company Caixin Media to increase its content offerings. Last year, it launched online video and expanded e-commerce offerings to take on entrenched players Youku Inc and Alibaba Group.
"The maturing of the Chinese Internet is forcing a lot of these companies to look beyond their core business. I think Tencent has been reasonably successful," Michael Clendenin, managing director of Shanghai-based technology consultancy RedTech Advisors, said before the earnings announcement.
Baidu Inc, China's largest search engine, spent the last two years expanding into online video, online travel and most recently into the mobile space. In May, Baidu launched a low-cost smartphone with a partner to tap the country's growing smartphone market.
Alibaba Group, whose Taobao Marketplace and Taobao Mall dominate China's e-commerce landscape, has also launched smartphones over the past year.
But not all forays have been successful. In August last year Baidu shut its microblogging platform, Shuoba, due to stiff competition from rivals. Baidu's $50 million e-commerce joint venture with Rakuten Inc was also shuttered in April this year.
Shares of Tencent, which is more than 30 percent owned by Naspers Ltd, South Africa's biggest media group, ended 0.17 percent lower on Wednesday before its results were announced, versus a 1.18 percent fall on the Hang Seng Index. Tencent shares are up about 47 percent this year. ($1 = 6.3586 Chinese yuan)
(Reporting by Melanie Lee in SHANGHAI; Additional reporting by Lee Chyen Yee in HONG KONG; Editing by Chris Gallagher)