Tencent’s Q2 earnings miss expectations as both domestic and international game revenue fell

August 18, 2022 0 Comments

Tencent released its second-quarter earnings report today, with both revenue and profit below expectations.

Total revenue was 134 billion yuan ($20 billion), slightly below the average estimate of 134.6 billion yuan and down 3% year over year.

Profit attributable to the company’s shareholders was 18.62 billion yuan, lower than the expected 25.28 billion yuan, down 56% year-on-year. Its net profit has decreased for several quarters in a row.

In the second quarter of 2022, revenue from value-added services segment, which includes gaming and social networking, was 71.7 billion yuan, down 0.5% year-on-year.

Domestic Games revenues decreased by 1% to 31.8 billion yuan, mainly due to fewer big game releases, lower user spending, and the implementation of minor protection measures, said Tencent.

Meanwhile, as the global game industry experienced a post-pandemic digestion period, International Games revenues decreased by 1% to 10.7 billion yuan.

The gaming business, which accounts for about 30% of total revenue, continued to be under pressure.Tencent has yet to receive a new game license from Chinese regulators after they temporarily halted approvals. Revenue from some of its hit titles such as PUBG Mobile and Honor of Kings declined during the quarter, according to the company.

The social network services reported 1% increase in revenue as contributions from short video content and live broadcasts rose. In recent quarters, the giant has ramped up support for the “WeChat Channels” to accelerate monetization in order to compete with ByteDance’s short-video platform Douyin.

Revenue from online advertising segment fell 18% year-on-year to 18.6 billion yuan due to weaker demand from internet services, online education and finance sector.

Revenue from the fintech and business services segment, which wraps up WeChat Pay and cloud computing business, rose 1% year-on-year to 42.2 billion yuan.

Due to the uncertain macroeconomic outlook, Tencent exited non-core businesses in the second quarter, tightened marketing expenditures, and cut operating expenses.

Ma Huateng, the CEO of Tencent, said in the company’s earnings release that business should pick up as the Chinese economy begins to recover.

China’s regulatory environment is “progressing from rectification to normalization,” said Tencent president Martin Lau on the earnings call, which should “bodes well for the industry over time.” In the gaming sector, he said, regulation was moving in a “more positive” direction.

Liu added that he expects Tencent to obtain gaming licenses from regulators in the “near future”, which will help the company’s domestic gaming business.

On the earnings call, Tencent Chief Strategy Officer James Mitchell told analysts that reports that Tencent intends to sell most of its Meituan stake were inaccurate. Meituan shares in the US rose more than 3.5% in New York Wednesday.  

The Shenzhen- headquartered giant has lost nearly 60% of its market value since it peaked in Feb 2021.

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