Tencent earnings beat drags up China Internet sector

Shares of Chinese Internet stocks are rallying after peer Tencent (TCEHY) reported second quarter results earlier. According to a statement on its website, Tencent is a leading provider of Internet value added services in China. EARNINGS: The company reported Q2 net income of 18.2B Yuan vs. estimates of 13.48B Yuan, up 70% from last year. The company, which Bloomberg said is "reaping the rewards of marrying social media with mobile gaming," reported Q2 revenue up 59% to 56.B Yuan vs. estimates of 52.98B Yuan and operating profit of 20.04B Yuan, an increase of 36%. The key to this quarter's results was the parabolic growth of smart phone gaming revenue. Smart phone games revenue grew by 54% year-over-year to approximately 14.8B Yuan and exceeded PC client games revenue for the first time, according to the company. Revenue growth in smart phone games was driven by existing titles such as Honour of Kings and new titles such as the Chinese version of Contra: Return in the Action genre. Online advertising was also a driver this quarter, as revenue grew 55% year-over-year to 10.1B Yuan, boosted by a 61% rise in "social and others advertising" revenue, mainly from WeChat ad revenue. CHINA UNICOM INVESTMENT: According to various media outlets, Alibaba (BABA), Tencent (TCEHY), and Baidu (BIDU), are investing $11.7B in China Unicom, the country's second-largest wireless telecom, as the county looks to private capital to support the state-owned entity. TENCENT AN OBSTACLE TO APPLE GAINS IN CHINA: According to a Wall Street Journal article out in late July, Tencent's instant-messaging platform WeChat, with nearly one billion monthly active users, poses a threat to Apple's (AAPL) efforts to gain market share in China, according to The Wall Street Journal. Fans use WeChat to pay for food, hail cabs, play games and stream videos, undermining the need for a new iPhone, the publication noted. PRICE ACTION: Tencent ADRs are up almost 7% to $43.60 per share. OTHER CHINESE INTERNET STOCKS FOLLOW: Shares of other companies in China's internet sector are also higher, including Alibaba (BABA), Baidu (BIDU), Weibo Corp (WB), NetEase (NTES), and SINA (SINA).