Chinese tech giant posts first ever revenue decline

Tencent saw its first ever quarter-on-quarter revenue decline due to stricter regulations regarding gaming in China, and a rebound of Covid-19 within the second-largest global economy.

Here are the results of Tencent’s second quarter compared with Refinitiv consensus estimates. 

• Revenue: 134.03 Billion Chinese Yuan ($19.78 Billion) vs. 134.6 Billion yuan anticipated, a decrease of 3% year on year.
• Capital equity holders receive a portion of the company’s profits 18.62 billion Yuan to 25.28 billion expected, a 56% decrease year-on-year.

Tencent failed to meet both its revenue and profit projections. Tencent experienced macroeconomic headwinds during the quarter due to the resurgence and subsequent lockdowns in major cities including Shanghai, the financial capital of China. Authorities have taken a zero-covid policy, which has led to disruptions in the second-largest country in the world.

China’s economy grew 0.4% in the second quarter. This was below analyst expectations. It had an impact on the company’s advertising, cloud, and fintech revenue.

China’s video game industry has faced many challenges as a result of stricter regulations. Tencent receives about a quarter of its total gaming revenue.

Chinese regulators last year introduced a rule that limits the time children under 18 can spend playing online games. This limit is only for certain times.

Between July 2021, and April 2019, regulators also stopped the approval of new games. China’s regulators must approve games before they can be released and monetized.

China Renaissance analysts stated in a publication last month that Tencent only launched three mobile apps in the second quarter. To generate revenue, the company relied on its popular titles.

Tencent reported that domestic games revenue for the second quarter fell 1% year over year to 31.8 billion Yuan. International games revenue declined the same percentage to 10.7 billion Yuan.

According to the Chinese tech giant, the international gaming market has “experienced a post pandemic digestion period.” The Covid pandemic was at its height and global lockdowns saw people turn to gaming as entertainment. Tencent and NetEase witnessed a large boom. Since countries have reopened they are spending less time playing video games. This makes it difficult for companies to keep up with the year-on–year comparisons.

Tencent stated that the Chinese market is experiencing a “same digestion period” due to transitional issues, such as relatively fewer big games releases, lower user spending and the implementation Minor protection measures.

According to the company, it experienced a decrease in revenue during the second quarter due to some of its long-standing hit games such as PUBG Mobile or Honor of Kings.

Tencent’s major business areas have been affected by the revival of Covid in China, economic lockdowns, and subsequent slowdown.

Online advertising revenue decreased 18% in the second quarter to 18.6 billion yuan.

Tencent also operates WeChat Pay, one of China’s largest mobile payment services. It is available via the WeChat messaging application. The app has more than 1 billion users. It also operates a growing cloud computing business. Under the “Fintech and Business Services” banner, it combines revenues from these two segments. This segment saw a 1% increase in revenue to 42.2 billion Yuan year-on-year, which was a slower pace than the quarter before.

Tencent stated that FinTech Services revenue growth was slower than in previous quarters due to COVID-19’s temporary impact on commercial payment activities in April, May and May.

Tencent’s CEO Ma Huateng said in an earnings release that business would pick up as China’s economy starts to recover.

Ma stated that FinTech and Business Services, as well as Online Advertising, account for approximately half of Ma’s revenues. This should allow Ma to forecast revenue growth as China’s economy grows.