Here's why Tencent remains a top buy in China's internet space

Chinese tech giant Tencent may have slightly missed expectations on its fourth-quarter earnings, released after market close on Wednesday, but it remains a top buy in the internet space, several analysts told CNBC.

Tencent, which is known for the highly popular social messenger app WeChat, saw net profit jump 47 percent on-year to 10.53 billion yuan ($1.52 billion) in the three months to December, but fell fractionally short of a Thomson Reuters poll estimate of 11.75 billion yuan.

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Jessie Guo, head of internet research at Jefferies, told CNBC that Tencent's WeChat payment offering, along with cloud services, will enjoy high levels of growth in the next 12 to 18 months, followed by the mobile gaming and digital businesses.

Payments have become a key driver

Tencent said it surpassed 600 million mobile payment monthly active user accounts (MAU) and average daily payment transactions in December.

"I think the key highlight on the result is actually the development in the payments (business), in terms of user base transactions, frequency and the processing capacity," Alex Yao, head of internet and new media at JPMorgan, told CNBC's "Squawk Box" on Thursday.

Yao predicted about two-thirds of mobile WeChat users make use of the payment services monthly, and he expected further room for growth due to the expanding number of people using digital and mobile payments.

"We believe payment is the most important infrastructure to the broader internet finance activities," Yao said about China.

"I am a long-term supporter of the company (because) internet finance will become the next big thing for the entire sector, and Tencent is well-positioned to capture the growth opportunity."

He expects Tencent, and rival Alibaba, which has the massive Alipay service run by Ant Financial, to become the biggest winners in the internet finance space over the next decade.

The world's biggest online payments platform

Mobile gaming expected to post strong growth

Tencent offers a wide range of PC-based and mobile games, which are either developed in-house or in partnership with other developers. In the December quarter, online games revenues grew by 16 percent annually to 18.47 billion yuan thanks to Tencent's player-vs-player and role-playing smartphone games, including a key title 'Honors of Kings.'

The company's mobile game portfolio — as of March — had 110 launched titles, with several more in the pipeline, according to a recent note from Jefferies. It said in February, six Tencent-developed titles ranked among the top 10 mobile games in China, sorted by monthly active devices.

John Choi, head of Hong Kong and China Internet research at Daiwa Capital Markets, told CNBC he is positive on the company's mobile gaming business because of the robust performance of the 'Honors of Kings' and a strong pipeline for 2017.

In a separate note to clients, Choi said he expected Tencent's mobile game revenue to grow 42 percent annually in 2017, up from a previous estimate of 30 percent.

Guo, however, told CNBC that there could be several downsides affecting Tencent's gaming business, including a quicker-than-expected slowdown in PC games, delays in new mobile game launch and regulatory policy risks such as the government putting tighter restrictions on online games played by children and teens.

Where Tencent share prices are headed

Social media platforms still growing rapidly

Tencent revealed on Wednesday that its social media platforms were growing faster than Facebook. Monthly active users, or MAUs, on its WeChat and Weixin platforms grew 28 percent on-year to 889 million. By comparison, Facebook's MAUs climbed 17 percent in 2016 to 1.86 billion.

"Social media platform(s) will continue to see strong growth," Guo said, adding that Tencent's acquisition of China Music Corporation — which owns music streaming services Kugou and Kuwo — will strengthen the company's hand in the music streaming business. Tencent already offered music streaming through QQ Music before last year's acquisition.

"This, together with video, will secure strong growth," she said.

Part of Tencent's 2017 strategy also includes growing its digital content subscriber bases.

Reports have said the company was looking to take its online publishing and e-book business — China Reading — public and had plans to raise up to $800 million.

Choi said, "The move itself is to unlock the value of its literature business, which should be positive ... this business is an important asset for Tencent as it contains many valuable copyrights for popular books and IP."