The $370 billion tech giant Tencent posted its year-on-year quarterly revenue decline. China’s strict gaming regulations and the rise of the Covid-19 pandemic were major reasons for this economic hit.
Chinese tech giant Tencent posted its quarterly year-on-year revenue decline. The $370 billion company’s first ever economic hit resulted from strict gaming regulations in China and the Covid-19 pandemic. Tencent second-quarter earnings v. REfinitiv consensus expectations show the following:
Tencent’s second quarter reported revenue of 134.03 billion Chinese yuan ($19.78 billion) against an expected revenue of 134.6 billion yuan, a 3% decline year on year. Profit attributable to the company’s equity holders: 18.62 billion yuan vs. 25.28 billion yuan estimated, a 56% decline year on year.
The Covid occurrence and subsequent lockdowns in China and Shanghai’s financial metropolis caused macroeconomic issues for Tencent during the quarter. In addition, Chinese authorities’ “Zero Covid” policy commitments caused economic disruptions across the country, affecting both Tecent’s revenue and profit forecasts.
Contrary to analysts’ estimations, China’s second-quarter economy grew only 0.4%, which eventually impacted the company’s cloud, fintech, and advertising revenue.
Gaming Regulations
Strict gaming regulations further affected the company’s revenue as it makes one-third of its revenue from gaming. A new rule introduced last year stated that children under 18 years are allowed to play online games for three hours maximum at specific times. Chinese regulators also paused new game approval from July 2021 to April this year.
Analysts at China Renaissance published a note last month saying that Tencent launched only three mobile games in the second quarter, relying on its existing popular games to generate revenue. As a result, its second-quarter domestic and international games revenue fell 1% year-on-year to 31.8 billion yuan and 10.7 billion yuan, respectively.
Tencent said that the international games market “experienced a post-pandemic digestion period.” During the Covid pandemic peak and global lockdowns, gaming was a key source of entertainment worldwide, increasing revenue for tech giants like Tencent and NetEase.
However, after unlocking, the scenario has changed as people spend less time gaming. Also, as per Tencent, the Chinese market experiences “a similar digestion period due to transitional issues including relatively fewer big game releases, lower user spending, and the implementation of Minor protection measures.”
Furthermore, the company’s popular games like PUBG Mobile and Honor of Kings also showed decreased revenue in the second quarter.
