Tencent suffers first ever drop in quarterly revenue

The content originally appeared on: CNN

Hong KongChina’s Tencent reported on Wednesday its first ever quarterly sales fall, hurt by a lack of game approvals and regulations that limit playing time, as well as Covid-19 lockdowns and a weak economy that squeezed ad sales.

The contraction marks a nadir for the gaming giant and owner of the WeChat messaging platform, which has reported double-digit growth almost every quarter since it went public in 2004, as Beijing’s crackdown on big tech companies that began in late 2020 puts the brakes on its expansion.
Tencent (TCEHY) plans to sell all or a bulk of its $24 billion stake in food delivery firm Meituan to placate domestic regulators, Reuters reported on Tuesday.
The company said on Wednesday revenue declined 3% to 134 billion yuan ($19.78 billion) for the three months ended June 30 from 138.3 billion yuan a year earlier. Analysts were anticipating the decline.
“During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses,” Ma Huateng, chairman and CEO of Tencent, said.
Net profit attributable to equity holders tumbled 56% to 18.6 billion yuan, below analysts estimate of 25 billion yuan.
China cut key lending rates on Monday to revive demand as data showed a slowdown in July, indicating the world’s second-largest economy is struggling to shake off the second quarter’s hit to growth from strict Covid restrictions.
E-commerce giant Alibaba (BABA) reported earlier this month flat quarterly revenue growth for the first time in its history.
Tencent has been reducing holdings in portfolio companies partly to appease the Chinese regulators and partly to book its hefty profits on those bets, according to sources.
The Shenzhen-based giant has lost nearly 60% of its market value since it peaked in February 2021 following Beijing’s regulatory crackdown to rein in the influence of large internet firms. However, the $373 billion company has held onto its crown as China’s most valuable company.
Revenue from online games, Tencent’s big profit driver, decreased both at home and abroad, with each declining by 1%. Tencent has yet to receive a new game license from Chinese regulators after they temporarily halted approvals.
Its social network services reported a 1% increase in revenue as WeChat earned more from its video content.
“In the short term, that may be its biggest growth driver,” Shawn Yang, manager director of Blue Lotus Capital Advisor said, referring to WeChat video revenue.
Tencent reported 18.6 billion yuan ($2.74 billion) in revenue for ads in the second quarter, down by 18%, as advertisers remain cautious with their budgets, but that was not as bad as some analysts had anticipated, according to Yang.