HONG KONG - Tencent's armour is looking strong as it battles with rivals and regulators. The $330 billion Chinese tech titan beat quarterly earnings expectations despite a regulatory crackdown on its core videogames business. Investment gains helped, but strength in advertising and mobile services also shielded profitability. Now boss Pony Ma has a sword to swing at competitors.

The embattled Ma has watched as investors wiped out a whopping $246 billion of market value since January. Shares of Tencent plunged 43 percent from a peak that month on worries that Beijing’s freeze on new game approvals, which started in March, would hammer videogames revenue. Tencent can’t make money off blockbuster titles like the survival-themed "Fortnite" in its home market yet, for instance. Other parts of the culture bureaucracy are pressing Ma to take action to alleviate gaming addiction and adolescent near-sightedness, both of which would dock profits. Yet Wednesday's much-anticipated results show the Shenzhen-based company has withstood the regulatory offensive with aplomb so far.

In the three months to September, earnings surged 30 percent from a year earlier to 23 billion yuan ($3.3 billion), a fifth higher than what analysts polled by Refinitiv were expecting. Investment gains of roughly 9 billion yuan, mostly from Tencent’s stake in the recently-listed food delivery-to-movie ticketing app Meituan Dianping, provided a valuable one-off boost, but the company’s fast-growing cloud computing, payments and advertising divisions strengthened too. They now account for a combined 45 percent of the company's total sales, offering a far better hedge against government whimsy.

The respite offers Ma an opportunity to widen its lead over smaller peers like the $28 billion NetEase. Older but still popular hits like "Honour of Kings", as well as a pipeline of 15 already-approved games, will help Tencent weather a prolonged crackdown that less-diversified rivals might not survive. Tencent's dominant social network-cum-digital wallet, WeChat, topped 1 billion monthly active users as of September. That means the firm can also push out games and services to a huge user base faster than anyone. If things stay on track, Tencent’s defence will look like a very effective offence.

CONTEXT NEWS

- China's Tencent on Nov. 14 reported revenue of 81 billion yuan in the three months to September, an increase of 24 percent from the same period last year. Revenue from online games decreased 4 percent year-on-year to 26 billion yuan.

- Earnings increased 30 percent to 23 billion yuan. That compares to the average forecast of 19.3 billion yuan from analysts polled by Refinitiv.

- Separately, Tencent on Oct. 1 announced its first restructuring in six years. As part of the plan, the company will consolidate three content-related businesses, including online media and mobile apps, and create a new division focusing on cloud computing and other enterprise services.

- Chinese regulators have halted approvals for new games since March, the company confirmed during an analyst call in August. The suspension follows a reorganisation of government bodies that oversee online gaming and other media sectors.

- China is the largest videogames market in the world and is on track to generate $34.4 billion in sales this year, according to industry tracker Newzoo.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Repeats with no changes to text.)

(Editing by Pete Sweeney and Bob Cervi) ((robyn.mak@thomsonreuters.com; Reuters Messaging: robyn.mak.thomsonreuters.com@reuters.net))