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Tencent's Name Belies Its Growing Internet Empire

TAIPEI, Taiwan ( TheStreet) -- For the past decade a friend in Beijing had asked me repeatedly to sign up for the QQ chat service, one of the biggest crazes on China's Internet. "Sorry," I would say, "I already use Microsoft's (MSFT - Get Report) MSN Chat, Google's (GOOG) Gmail chat and text messaging. Isn't that enough?"

It's not enough if you're an Internet user in China, where college students use the fast, free QQ to pick up dates in cybercafés and workers write to friends behind their bosses' backs.

So this month, after another reminder, I downloaded QQ into my smartphone. I wanted to make sure it worked before writing a column saying that QQ's provider, Tencent (TCTZF:OTC) (0700.HK) is the next craze for investors picking stocks from China.

Tencent left that impression this month when Chinese tech media said the Shenzhen-based Internet service provider would offer a list of popular games through its mobile messaging application WeChat. (Representatives of Tencent wouldn't confirm this news.)

QQ was one of Tencent's first offers after it started up in 1998, and the rack of games is just its latest. In the interim Tencent grew into China's "largest and most used" Internet service portal, according to the company's spiffy English-language Web site.

So the inaptly named company headed by its core founder, 41-year-old billionaire Pony Ma, posted a first-quarter profit of slightly more than 4 million yuan ($649.4 million), a 17.3% increase over the previous quarter and a 37.4% gain from a year before.

It's no surprise that Tencent has been described as one of its country's big three Internet firms, along with e-commerce company Alibaba and the made-for-China search engine Baidu (BIDU).

Tencent's U.S. stock was recently trading at around $42, near its all-time high following a slump in late 2011. Its Hong Kong-listed shares recently changed hands at nearly HK$330 ($42.50), just below their all-time highs.

It's easy to see why. QQ chat claims 825 million users, more than half of China's population, with as many as 194 million active at one time. Another 128 million e-mail accounts and 81 million microblogs are registered under Tencent. Its search engine Paipai also sells ads.

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