Tencent Reports Rare Profit Drop As Gaming Unit Falls Under Regulatory Scrutiny

Ivan Schwartz
August 16, 2018

Tencent Holdings may run the world's biggest video games business by revenue and China's most widely used social media platform, but the company is finding out that it too is subject to the sometimes unpredictable workings of the government. Mobile gaming revenue jumped 19% year-over-year, making for a sequential decline of 19%. Executives said they had little clarity on when the process would return to normal, putting more pressure on a company that has lost more than US$160 billion (S$220.88 billion) of market value since its January peak.

A clampdown on approvals for new games will probably make matters worse.

Tencent's earnings shock is most likely reminding investors of Facebook's similarly jarring quarterly report from late July, when the company missed revenue targets and predicted slowing future growth. Shares in Naspers Ltd., Tencent's single largest shareholder, tanked 10 per cent in Johannesburg.

China's games industry regulator said it had received several complaints about "Monster Hunter: World", which is rated for players ages 13 and up in the U.S. Other sources say the move reflects infighting within China's media and entertainment regulatory system, which has led to a backlog of games and feature films that await approval and that are unable to commit to marketing campaigns for lack of a launch date. "The fact that Monster Hunter got taken down shows that even Tencent isn't immune from regulatory crackdowns".

Tencent is part of a group of companies that have dominated the Internet in China.

One potentially promising area is payments, where monthly active users stood at 800 million as of June.

Longer-term, Tencent still commands a powerful asset in WeChat, the ubiquitous messaging service that underpins its gaming and ads business.

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The company is diversifying by building up advertising, video and music streaming.

"The major disappointment was the top line, and that's on top of estimates being hugely guided down from about a month ago", said Billy Leung, an analyst with Haitong International Securities Co.in Hong Kong.

Gaming for now remains its bread and butter. Though this was 30 percent higher than a year earlier, it was below the 77.5 billion yuan average forecast by analysts.

The absence of regulatory approval has hobbled one of its biggest titles.

Although the mobile game is very popular, without licensing approvals, it can't create potentially lucrative new versions, according to ifanr.

He said the block follows concern over Tencent's ability to monetise popular game PlayerUnknown Battleground (PUBG), which it was forced to alter past year after the regulator branded it too gory and violent.

Other reports by GizPress

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