Tencent Profits Drop as China Puts Squeeze on Online Games

tencent profits drop as china puts squeeze on online games
Tencent Profits Drop as China Puts Squeeze on Online Games

China’s Tencent reported a quarterly drop in net income Wednesday, amid an apparent regulatory squeeze on the tech giant’s online gaming business.

Total revenues for the quarter rose by 30 percent year-on-year to 73.68 billion yuan ($10.65 billion) while online games revenue increased 6 percent to 25.20 billion yuan, according to a filing with the Hong Kong Stock Exchange.

But profit was down 2 percent from the previous year, a result Bloomberg reported was the first drop for the firm in over a decade.

Gaming revenue dropped 12 percent from the first quarter, which the company said reflected a user shift into non-monetized games, the timing of new game launches and “weaker seasonality.”

Bloomberg News reported Wednesday that China had stopped approving any new mobile games as part of a wider shake-up of the market.

Quoting unnamed sources, Bloomberg said approvals for online, console and mobile games have been stalled for months, leaving developers stranded.

Regulators have also balked at approving games featuring violence and gambling, Bloomberg quoted a source saying, as Chinese President Xi Jinping pushes a “purification” campaign in media and entertainment.

The decision has battered shares of market leaders like Tencent, which have plunged since the company was ordered to remove hit game “Monster Hunter: World” from sale only days after its debut.

Tencent shares were battered in Hong Kong trade Wednesday, ending down 3.61 percent.

The company said it would seek to boost mobile game revenue growth by “boosting engagement and monetization of existing games”.

“To monetize online games at this moment is very critical” for Tencent, said Huarong International Securities analyst Jackson Wong, adding that the firm would face further revenue decline if new gaming releases were stalled further.

Tencent has lost more than $150 billion in market value with stock falling over 17 percent since a January peak, while main rival Alibaba remained stable.

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Author: HEDGE

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