The Chinese tech giant posted its first-ever revenue decline

Tencent Covid-19 reported its first ever quarterly drop in year-over-year revenue as the tech giant hit tougher regulations around gaming in China and the resurgence of Covid-19 in the world’s second-largest economy.

Here’s how Tencent performed in the second quarter, versus Refinitiv’s consensus estimates:

  • he won: CNY 134.03 billion ($19.78 billion) versus CNY 134.6 billion expected, down 3% year-on-year.
  • Profit attributable to the shareholders of the company: 18.62 billion yuan versus 25.28 billion yuan expected, down 56% year on year.

Tencent missed revenue and earnings forecasts. During the quarter, Tencent faced macroeconomic headwinds stemming from the resurgence of Covid in China and the subsequent shutdown of major cities, Including Shanghai Financial City. The authorities committed to the following: Zero Covid policy That caused turmoil in the world’s second largest economy.

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

Meanwhile, China’s domestic video game industry has also faced challenges due to stricter regulation. Tencent generates about a third of its total revenue from gaming.

gaming challenges

Last year, Chinese regulators introduced a rule that limits the amount of time children under 18 can spend playing online games to a maximum. Three hours a week, during certain times only.

Organizers too Approval for new games has been frozen between July 2021 and April of this year. In China, games need to get the green light from the organizers before they can be launched and monetized.

Analysts at China Renaissance said in a note published last month that Tencent launched only three mobile games in the second quarter. So the company relied on its existing popular monikers to generate revenue.

Tencent faced a number of headwinds in 2022 including a Covid-induced slowdown in the Chinese economy and a tougher gaming market.

Bobby Yip | Reuters

Tencent said domestic gaming revenue in the second quarter fell 1% year on year to 31.8 billion yuan, while international gaming revenue fell by the same percentage to 10.7 billion yuan.

The Chinese tech giant said the international gaming market has “experienced a post-epidemic digestion period”. During the height of the Covid pandemic and global lockdowns, people turned to gaming for entertainment and companies like Tencent and its rival NetEase experienced a boom. But since countries have reopened, people are spending less time playing games, and annual comparisons for companies are hard to stick to.

Tencent also said that the Chinese market is experiencing “a similar period of uptake due to transitional issues including relatively fewer large game releases, lower user spending, and implementation of minor safeguards.”

The company said it saw a drop in revenue in the second quarter from some of the long-running hit games like PUBG Mobile and Honor of Kings.

China’s economic slowdown has a big impact

The emergence of Covid in China, the shutdowns and the subsequent economic slowdown have spread to key areas of Tencent’s business.

Online advertising revenue in the second quarter totaled 18.6 billion yuan, down 18% year on year.

Tencent also operates one of the largest mobile payment services in China called WeChat Pay via the WeChat messaging app that has over a billion users. The company also has a nascent cloud computing business. Revenue from these two is wrapped under the “Fintech and Business Services” tag. Revenue from this segment grew 1% year on year to 42.2 billion yuan, slowing from the previous quarter.

“FinTech Services revenue growth was slower compared to previous quarters as the COVID-19 resurgence temporarily impacted commercial payment activities in April and May,” Tencent said.

Ma Huateng, CEO of Tencent, said in the company’s earnings statement that business should rebound as the Chinese economy begins to recover.

“We generate nearly half of our revenue from financial and business services as well as online advertising that directly contributes to and benefits from overall economic activity, which should put us in a position of revenue growth as the Chinese economy expands,” Ma said.

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