Tencent shares hit by profit drop
Firm faces murky outlook for China video game approvals
HONG KONG: Shares in China’s Tencent Holdings lost more ground after it logged its first quarterly profit decline in nearly 13 years and said it did not know when it would get Chinese approval to make money off its most popular game.
The disappointing earnings results have highlighted the impact of a freeze on new China approvals for the gaming industry since March due to the restructuring of related regulatory agencies in the world’s biggest gaming market.
Reporting a 2% decline in second-quarter net profit as well as its slowest revenue growth in three years, Tencent said the big- gest hurdle to a return to rapid revenue growth was that it could not yet charge for its PlayerUnknowns’ Battlegrounds (PUBG) video game in China.
Shares in China’s largest social media and gaming company dropped 3%, adding to a painful slide earlier this week after its blockbuster title “Monster Hunter: World” was pulled in the country due to regulatory complaints.
Gaming revenue accounted for 40% of Tencent’s total revenue in the quarter.
China has a complex approvals process for games and while PUBG can be played as a free game, Tencent has yet to receive the nod to monetise it. PUBG is a popular battle game with more than 400 million players worldwide developed by Tencent’s South Korean partner and investee company Bluehole.
Tencent was forced to pull “Monster Hunter: World”, a popular game worldwide, four days after its China launch.
Company president Martin Lau told an earnings call on Wednesday the content was not fully compliant without elaborating.
This is not the first time Tencent’s games have come under scrutiny from regulators. In July last year, China’s communist party mouthpiece, the People’s Daily, criticised Tencent, describing its “Honour of Kings” game as poison and called for tighter regulatory controls of online games.
While many analysts have moved to cut their target prices for Tencent’s stock this week, they were broadly upbeat about the firm’s longer-term outlook.
“We consider the disruption to the game business to be temporary and primarily due to licensing suspension amid regulatory uncertainties; the business remains structurally intact, in our view,” Daiwa Capital markets analyst John Choi said in a client note.
Choi cut his price target to HK$400 from HK$490 but maintained his “buy” rating. — Reuters