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Chinese tech giant posts first ever revenue decline

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Tencent has faced a variety of headwinds in 2022 including a Covid-induced slowdown within the Chinese economy and a tougher marketplace for gaming.

Bobby Yip | Reuters

Tencent posted its first ever quarterly year-on-year revenue decline as stricter regulations around gaming in China and a resurgence of Covid-19 on the earth’s second-largest economy hit the technology giant.

Here’s how Tencent did within the second quarter, versus Refinitiv consensus estimates: 

  • Revenue: 134.03 billion Chinese yuan ($19.78 billion) vs. 134.6 billion yuan expected, a decline of three% year-on-year.
  • Profit attributable to equity holders of the corporate: 18.62 billion yuan vs. 25.28 billion yuan expected, a decline of 56% year-on-year.

Tencent missed each revenue and profit forecasts. In the course of the quarter, Tencent faced macroeconomic headwinds stemming from a resurgence of Covid in China and subsequent lockdowns of major cities, including the financial metropolis of Shanghai. Authorities have committed to a “Zero Covid” policy which has caused disruptions internationally’s second-largest economy.

China’s economy grew just 0.4% within the second quarter, missing analyst expectations. That had an impact on the corporate’s fintech, cloud and promoting revenue.

Meanwhile, China’s domestic video games industry has also faced challenges attributable to stricter regulation. Tencent makes a few third of its total revenue from gaming.

Gaming challenges

Last yr, Chinese regulators introduced a rule limiting the period of time children under 18-years-old could spend playing online games to a maximum of three hours per week and only during specific times.

Regulators also froze the approval of latest games between July 2021 and April this yr. In China, games have to get the green light from regulators before being released and monetized.

Analysts at China Renaissance said in a note published last month that Tencent launched just three mobile games within the second quarter. So the corporate has relied on its existing popular titles to generate revenue.

Tencent said second-quarter domestic games revenue fell 1% year-on-year to 31.8 billion yuan, while international games revenue fell the identical percentage amount to 10.7 billion yuan.

The Chinese technology giant said the international games market “experienced a post-pandemic digestion period.” In the course of the height of the Covid pandemic and lockdowns globally, people turned to gaming for entertainment and firms like Tencent and rival NetEase saw an enormous boom. But since countries have re-opened, individuals are spending less time playing games and the year-on-year comparisons for firms are tough to live as much as.

Tencent also said the Chinese market was experiencing “an analogous digestion period attributable to transitional issues including relatively fewer big game releases, lower user spending, and the implementation of Minor protection measures.”

The corporate said it saw decreased revenue within the second quarter from a few of its long-established hit games like PUBG Mobile and Honor of Kings.

Chinese economic slowdown takes toll

The resurgence of Covid in China, lockdowns and subsequent economic slowdown has trickled through to major areas of Tencent’s business.

Online ad revenue within the second quarter totaled 18.6 billion yuan, down 18% year-on-year.

Tencent also runs one among the largest mobile payments services in China called WeChat Pay via its WeChat messaging app which has over 1 billion users. The corporate also has a nascent cloud computing business. It wraps revenue from these two under the banner of “Fintech and Business Services.” Revenue from this segment grew 1% year-on-year to 42.2 billion yuan, a slowing from the quarter before.

“FinTech Services revenue growth was slower relative to prior quarters as COVID-19 resurgence temporarily impacted industrial payment activities in April and May,” Tencent said.

Ma Huateng, the CEO of Tencent, said in the corporate’s earnings release that business should pick up because the Chinese economy begins to recuperate.

“We generate roughly half of our revenues from FinTech and Business Services in addition to Online Promoting that directly contribute to, and profit from, overall economic activity, which should position us for revenue growth as China’s economy expands,” Ma said.

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