Tencent surprises with profit drop as China hobbles games

Bloomberg

Tencent Holdings Ltd. surprised investors with its first profit drop in at least a decade as a Chinese regulatory freeze on game approvals hurt its ability to make money off marquee titles.
Net income fell 2 percent to 17.9 billion yuan ($2.6 billion) in the three months ended in June, the Shenzhen-based company said, well short of the 19.3 billion-yuan average of analysts’ estimates.
The results reflected slowing growth in cash cow mobile game Honour of Kings, increased spending and fewer investment gains.
After soaring into the ranks of the world’s biggest companies, Tencent has lost more than $150 billion of market value as the company struggles to monetise new games. China ordered it to shut down Monster Hunter: World from its PC downloads service just days after its debut, while the country’s watchdogs are said to have frozen approval of game licenses. That contributed to a 19 percent drop in mobile gaming revenue from the first quarter.
“The results were really bad,” said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch. “The fact that Monster Hunter got taken down shows that even Tencent isn’t immune from regulatory crackdowns.”
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.
Shares in Naspers Ltd., Tencent’s single largest shareholder, tanked 10 percent in Johannesburg.
“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.”
Revenue rose 30 percent to 73.7 billion yuan, but that again fell short of analysts’ estimates for 77.7 billion yuan. Shares of Tencent fell 3.6 percent to HK$336 in Hong Kong before earnings were announced. The stock has slid more than 17 percent this year, while New York-listed rival Alibaba Group Holding Ltd. remained mostly unchanged.
Tencent still commands a powerful asset in WeChat, the ubiquitous messaging service that underpins its gaming and ads business. Monthly active users climbed almost 10 percent to 1.06 billion.