Tencent profit falls for the first time in nearly 13 years as gaming unit suffers regulatory scrutiny

  • Tencent reports second-quarter earnings Wednesday.
  • Analysts expect a slowdown in revenue growth.
  • The online gaming business is a concern after Chinese regulators have clamped down on the industry and even ordered Tencent to stop selling a popular game called “Monster Hunter: World.”

Tencent reported second-quarter earnings that missed analyst expectations on Wednesday with increased Chinese regulatory scrutiny of its huge gaming business impacting revenue.

Shares of the Chinese internet giant were down more than 6 percent Wednesday.

Here’s how the company did in the three months to the end of June:

  • Revenues of 73.7 billion yuan ($10.6 billion) versus 77.3 billion yuan expected by analysts surveyed by Reuters. This is a 30 percent year-on-year rise. This is the slowest revenue growth since the second quarter of 2015.
  • Net profit of 17.9 billion yuan versus 19.6 billion yuan expected, representing a 2 percent year-on-year decline and a 23 percent fall from the previous quarter. It’s the first decline since the third quarter of 2005.
  • Earnings per share of 1.89 yuan versus 1.98 yuan expected.

Gaming worries

Tencent has a number of different business areas, including advertising and gaming, and is the owner of China’s largest messaging app, WeChat. One of the biggest is its online games unite which accounts for nearly 40 percent of the company’s revenues. Online gaming in China has come under intense scrutiny from regulators and that has impacted Tencent’s crucial division.

Smartphone games revenue grew 19 percent year-on-year but declined 19 percent from the previous quarter to 17.6 billion yuan. While daily active users (DAU) increased, the money it makes per user did not.

“In China, DAU for our smart phone games grew at a double-digit rate year-on-year, but monetization per user declined as users shifted time to non-monetized tactical tournament games,” Tencent said in its earnings release.

www.cnbc.com/2018/08/15/tencent-q2-2018-earnings.html