Negative impact from regulation on Tencent Holdings growth
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Tencent Holdings has recorded its first quarterly fall in profits in 13 years, hampered by government delays in approving new online games.
Second-quarter profit fell 2 per cent to RMB 17.9 billion (US$2.6 billion) on sales totalling RMB 73.7 billion ($10.65 billion).
The company’s mobile games business revenue fell 19 per cent quarter-on-quarter to RMB 17.6 billion due to delays in the launch of new games and failure to gain approval for charging fees on popular tactical tournament games.
“This is the worst result in recent memory from Tencent, with the first quarter-on-quarter fall in profits in 13 years and major disappointment on mobile gaming revenue and margins,” said Douglas Morton, the head of research in Asia at Northern Trust Capital Markets in an investor note.
“The miss, however, was driven purely by regulatory delays to game approvals, meaning the long-term story for Tencent may well remain intact.”
Another analyst, He Saiyu, from Huatai Financial Holdings, wrote that gaming revenue growth should remain positive later in the year due to increased monetisation of existing games.
“Mini programs should help to boost Tencent’s cloud, advertising and online payments business grow.”
He said user traffic and engagement levels across all its major platforms, including WeChat and QQ are all growing at a healthy pace.
Questions & Answers
Q.What was the main reason for Tencent Holdings' first profit decline in 13 years?
What was the main reason for Tencent Holdings' first profit decline in 13 years?
The company's profits were negatively impacted by government delays in approving new online games. This led to a 19 per cent fall in mobile games business revenue quarter-on-quarter, as new games were delayed and approval for charging fees on popular games was not granted.
Q.What was the financial impact of this decline on Tencent Holdings?
What was the financial impact of this decline on Tencent Holdings?
Second-quarter profit fell 2 per cent to RMB 17.9 billion (US$2.6 billion) compared to the previous quarter. Sales for the period totalled RMB 73.7 billion ($10.65 billion), showing a significant dip in profitability despite continued sales.
Q.Are there any positive outlooks for Tencent's future growth despite the recent profit fall?
Are there any positive outlooks for Tencent's future growth despite the recent profit fall?
Yes, an analyst noted that gaming revenue growth should improve later in the year due to increased monetisation of existing games. Also, user traffic and engagement on platforms like WeChat and QQ are growing well, and mini programs are expected to boost cloud, advertising, and online payments.
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