Regulatory limbo hits Tencent with first profit fall in almost 13 years

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China has frozen approval of new game licenses amid a government shake-up, people familiar with the matter said this week. Those steps include "deepening engagement" with its existing major titles and "monetising" popular tactical tournament games.

China's largest social media and gaming firm said April-June profit fell to 17.87 billion yuan (US$2.59 billion), lagging the 19.67 billion yuan average of 12 analyst estimates compiled by Thomson Reuters. Mobile gaming revenue dropped 19 per cent from the first quarter.

- Tencent's Hong Kong-listed shares closed down 3.6% to HK$336 ahead of the release of its quarterly results on August 15.

China is said to have halted new game approvals and this week forced the pulling of the Monster Hunter game just days after its debut.

China's billion-strong population loves to game which is why it comes as no surprise China is the world's largest gaming market valued at $37.9 billion. The interesting parts of it are the details about Riot's declining playerbase and Tencent's own pursuit of mobile gaming, which have supposedly caused both companies to butt heads a couple of times in the past.

Shares of Japan's Capcom Co Ltd 9697.T , which developed "Monster Hunter: World", slid more than 5 percent.

While Tencent's shares fell by 3.9 percent, it isn't just the Chinese video game market that is devastated by the freeze.

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KitGuru Says: The increasing desperation to get the market back on track could see regulation tighten or loosen depending on who steps up into leadership, but China's reputation certainly shows it to favour the former.

Tencent delivered disappointing second quarter results as the Chinese technology giant struggles with regulatory hurdles for its gaming business.

Tencent blamed its profit decline also on fewer investment gains. Revenue increased to 73.7 billion yuan ($10.7 billion). Monthly active users climbed nearly 10 per cent to 1.06 billion in the June quarter - a massive population of consumers not just for games and ads but also fledgling services from video to financial services.

While there is a "green" process that enables the company to test monetization of games, that won't apply to PUBG because of its sheer scale, Lau said.

Still, concerns remain about the prospects of the company's video games business. It still hasn't gotten a green light to launch hit South Korean game PlayerUnknown's Battlegrounds for desktops, nor approval to begin making money off Chinese players of the mobile version.

He said the block follows concern over Tencent's ability to monetise popular game PlayerUnknown Battleground (PUBG), which it was forced to alter past year after the regulator branded it too gory and violent.

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