Tencent faced a number of headwinds in 2022, including a Covid-induced slowdown in China’s economy and a tougher gaming market.
Bobby Yip | Reuters
Tencent posted its first quarterly year-over-year revenue decline as tighter gambling regulations in China and a resurgence of Covid-19 in the world’s second-largest economy hit the tech giant.
Here’s how Tencent fared in the second quarter versus Refinitiv consensus estimates:
- revenue: 134.03 billion Chinese yuan (US$19.78 billion) vs. 134.6 billion yuan expected, down 3% year-on-year.
- Profit attributable to shareholders of the company: 18.62 billion yuan versus the expected 25.28 billion yuan, down 56% year-on-year.
Tencent missed both revenue and earnings guidance. During the quarter, Tencent faced macro headwinds stemming from a resurgence of Covid in China and the subsequent lockdown of major cities, including financial hub Shanghai. Authorities have committed to a “zero Covid” policy that has caused disruption in the world’s second largest economy.
China’s economy grew just 0.4% in the second quarter, missing analysts’ expectations. That impacted the company’s fintech, cloud, and advertising revenue.
Meanwhile, China’s domestic video game industry is also facing challenges due to tighter regulations. Tencent makes about a third of its total revenue from gaming.
Last year, Chinese regulators introduced a rule capping the time children under 18 can spend playing online games to a maximum of three hours a week and only at certain times.
Regulators have also frozen the approval of new games between July 2021 and April this year. In China, games must get the green light from regulators before they can be released and monetized.
Analysts at China Renaissance said in a note released last month that Tencent launched just three mobile games in the second quarter. As such, the company has relied on its existing popular titles to generate revenue.
Tencent said domestic game revenue fell 1% year-on-year to 31.8 billion yuan in the second quarter, while international game revenue fell by the same percentage to 10.7 billion yuan.
The Chinese tech giant said the international gaming market has “experienced a post-pandemic digestion period.” During the height of the Covid pandemic and global lockdowns, people turned to gaming for entertainment, and companies like Tencent and rival NetEase thrived. But since countries have reopened, people are spending less time gaming and year-on-year comparisons are hard for businesses to meet.
Tencent also said that the Chinese market is “enjoying a similar digestion period due to transition issues, including relatively fewer major game releases, lower user spending, and the implementation of measures to protect minors.”
The company said it saw revenue from some of its long-time hit games, such as PUBG Mobile and Honor of Kings, fall in the second quarter.