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Tencent posts a surprise profit drop as regulators hobble games

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Tencent Holdings posted a surprise drop in quarterly profit as regulatory uncertainties hurt the company's ability to make money off marquee titles and it posted fewer investment gains.

[HONG KONG] Tencent Holdings posted a surprise drop in quarterly profit as regulatory uncertainties hurt the company's ability to make money off marquee titles and it posted fewer investment gains.

Net income fell two per cent to 17.9 billion yuan (S$3.6 billion) in the three months ended June, the Shenzhen-based company said Wednesday. That compares with the 19.3 billion-yuan average of analysts' estimates compiled by Bloomberg. Adjusted earnings per share were 2.06 yuan, compared with the prediction for about two yuan.

The gaming operation's troubles were brewing well before China decided this week to shut down Monster Hunter: World from Tencent's PC downloads service just days after the action title debuted. Other concerns include the hold-up for PlayerUnknown's Battlegrounds on desktops and still-absent approval to start earning off Chinese players of the mobile version — the country's second most popular game in June by time spent.

"Tencent's gaming business did even worse than expected," said Li Yujie, an analyst at RHB Research Institute in Hong Kong. "Despite having a lot of players for PUBG, its inability to monetise the game is causing a slowdown in revenue growth."

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China has frozen approval of new game licenses amid a government shake-up, people familiar with the matter said this week.

Revenue rose 30 per cent to 73.7 billion yuan, compared with analyst estimates for 77.7 billion yuan.

Shares of Tencent fell 3.6 per cent to HK$336 in Hong Kong before earnings were announced. The stock has slid more than 17 per cent this year, while New York-listed rival Alibaba Group Holding remained mostly unchanged.

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