(Yicai) Aug. 18 -- Tencent Holdings expanded its net profit by more than 40 percent in the second quarter as the Chinese social media and video games giant increased its advertising business via artificial intelligence.

Net profit surged by 41 percent to CNY26.2 billion (USD3.6 billion) in the three months ended June from a year ago, the Shenzhen-based WeChat operator said in its quarterly report recently. Revenue jumped by 11 percent to CNY149.2 billion (USD20.5 billion).

Tencent gravitated toward high-quality revenue streams with better margins, it said. "This transition, combined with careful cost discipline developed in the previous year, resulted in profit growth exceeding revenue growth." The firm's advertising business grew rapidly as the company deployed machine learning on its platform and monetized TikTok-like Video Accounts. 

The firm did not disclose an earnings outlook but much depends on progress in AI. Tencent has started internally testing a foundation model in different businesses such as games, ads, cloud, and fintech. "It is among the top leading foundation models produced in China," said Martin Lau, president of the tech firm. The company intends to launch the large ML model later this year. 

In the second quarter, revenue from value-added services climbed by 4 percent to CNY74.2 billion, contributing almost half of the total despite the slow increase. 

Income from social networks edged up by 2 percent to CNY30 billion, driven by mini-games and music subscriptions but streaming of games and music declined. WeChat logged 1.3 billion monthly active users, as synergies increased between video accounts, mini-programs, and Moments, a feature similar to Instagram Stories.

Another growth point was international games as such revenue widened by 19 percent to CNY12.7 billion due to hit games such as Valorant, Triple Match 3D, and Goddess of Victory: Nikke. Domestic games were stable at CNY31.8 billion.

A major highlight was online advertising as such income increased by 34 percent to CNY25 billion, driven by demand for video ads and increased efficiency provided by ML.

Revenue from fintech and business services expanded by 15 percent to CNY48.6 billion as payments, supported by rising live streaming e-commerce transactions, and growing cloud services. 

Editor: Emmi Laine