China’s Tencent growing fast in internet messaging and gaming

China’s chat and gaming service Tencent reported revenues and earnings today that should make everyone take notice. As the company prints money in its domestic market, it is amassing more capital to become a player on a worldwide stage in the social and gaming markets.

Rich with cash from its QQ games and chat, Tencent recently agreed to buy U.S. online game maker Riot Games for $315 million. Observers believe that the company will acquire more firms in a bid to become the world’s largest game company.

Revenues for the year were $2.97 billion, up 57.9 percent compared to a year ago. Earnings were $225.4 million, up 55.4 percent from a year ago. Gross profit margin was 67 percent. Tencent has stakes in and owns a lot of leading Chinese online businesses in fields including instant messaging, games, e-commerce, search and mobile services. Its market capitalization is around $51 billion, which is just about the same as Facebook’s last measured valuation.

User accounts for instant messaging are now at 647.6 million. And the peak number of simultaneous online chat users is 127.5 million. The number of peak simultaneous online QQ game users is 6.8 million. Platforms include QQ, Qzone, microblog and Tenpay. Ma Huateng, chairman and chief executive, said in the earnings statement that “Tencent is entering a new phase of investments for the future.” He said the company will invest in a number of new strategic platforms from microblogging to online security, in addition to existing businesses.

Since those are long-term investments, he said, Tencent isn’t worried about turning a profit on them in the short term. Tencent noted that during the quarter, the company suffered a significant security attack that disrupted its user base and hurt its corporate image. That’s why online security is a priority. Tencent has also been expanding overseas with investments in Russia, India, and Southeast Asia.

Tencent said it had strong online gaming revenue growth (up 9 percent from the previous quarter) thanks to the launch of the web-based massively multiplayer online game Qi Xiong Zheng Ba and better monetization of its Cross Fire, Dungeon and Fighter and QQ Game businesses. Year over year, China’s number of internet users was up 19.1 percent to 457.3 million in 2010, according to the China Internet Network Information Center. That means about 34 percent of the population is online.

Tim Merel, managing director at the boutique investment bank Digi-Capital, said he is not surprised at Tencent’s strong performance, given its strength in users, delivery across platforms, and cutting edge capabilities in cost-efficient game development. He says Tencent’s globalization efforts, as exemplified by its purchase of most of Riot Games, will be interesting to watch. If Tencent can replicate its success elsewhere, then it could become the biggest player in games and other online businesses. Merel wrote an analysis piece for us on Tencent’s strength in games back in September.