Tencent Reports First-ever Revenue Drop, Takes A Hit From Covid-19 Resurgence And Increased Gaming Regulations

Chinese big tech company Tencent reported its first-ever year-on-year revenue decline induced by a resurgence of Covid-19 and increased regulations around gaming in the country.

The company reported revenue of 134.03 billion yuan, or $19.78 billion for the second quarter compared to the 134.6 billion yuan that analysts had expected. Revenue declined 3 percent year on year. The company also reported a profit attributable to equity holders of the company of 18.62 billion yuan, below the 25.28 billion yuan that was the expectation of analysts. This declined 56 percent year on year.

Like many other companies, Tencent faced macroeconomic challenges resulting from a resurgence of Covid-19 in China. Major cities, including Shanghai, had to be locked down as authorities were committed to ensuring that the Zero Covid policy was followed.

The Chinese economy was hit during this period as it only grew 0.4 percent in the second quarter. Various Tencent segments including fintech, cloud, and advertising took a hit. Increased regulation of China’s domestic video games industry also was a challenge for Tencent and other companies in the business. About one-third of Tencent’s revenue comes from its gaming segment; this shows how important and affected the segment is.

In the second quarter, Tencent only published three mobile games, according to analysts at China Renaissance. The company, therefore, had to depend hugely on its existing major titles to generate revenue. Domestic games revenue in the second quarter dropped 1 percent to 31.8 billion yuan, the company said. International games revenue also fell 1 percent to 10.7 billion yuan. The international games market “experienced a post-pandemic digestion period,” Tencent said. The time people spend on gaming has reduced compared to pandemic times, the company added. The company also said that the domestic market was witnessing “a similar digestion period due to transitional issues including relatively fewer big game releases, lower user spending, and the implementation of Minor protection measures.” Tencent saw a decline in revenue from popular titles like PUBG Mobile and Honor of Kings in the second quarter.

Tencent reported online ad revenue of 18.6 billion yuan, down 18 percent year on year. Revenue from its Fintech and Business Services segment grew 1 percent year on year to 42.2 billion. “FinTech Services revenue growth was slower relative to prior quarters as COVID-19 resurgence temporarily impacted commercial payment activities in April and May,” the company said.

The company remains positive about recovery. Its CEO Ma Huateng said that business is expected to pick up as the economy recovers. “We generate approximately half of our revenues from FinTech and Business Services as well as Online Advertising that directly contributes to, and benefit from, overall economic activity, which should position us for revenue growth as China’s economy expands,” he said.