Tencent misses expectations in Q2 on losses in game sector, tighter regulations

Domestic internet and entertainment giant Tencent Holdings’ second-quarter financial results missed expectations as it failed to stand its ground in an increasingly competitive game market and faces tightening regulations.

Tencent’s mobile games revenue declined 19 percent quarter-on-quarter to 17.6 billion yuan ($2.55 billion), according to the company’s earnings report released on Wednesday.

Tencent said this result was due to “non-monetization of popular tactical tournament games and timing of new game releases.”

Dong Zhen, an analyst with Beijingbased market consultancy Analysys International, told the Global Times Thursday that recent regulations on the domestic video games sector might have also contributed to Tencent’s rare slump.

Two mobile versions of Tencent’s popular PC game – PlayerUnknown’s Battlegrounds (PUBG) – have not been able to generate revenue for the company because of delays in regulatory approvals.

Besides, the much-anticipated game Monster Hunter: World, developed by Japan’s Capcom Co, was pulled off Tencent’s WeGame platform on Monday after five days, according to media reports.

Tencent explained in a statement that regulators had received a large number of complaints about the content of the game, so the sales qualification was canceled.

However, Dong said, regulations are not the root cause.

“The gaming market has entered an era of taking stock, instead of the previous crazy growth period,” Dong said, which means capturing users has become more and more difficult.

Liu Dingding, a Beijing-based technology analyst, agreed. He said that the bottleneck for the gaming market’s further growth comes from two sources: stagnant user numbers and external competitors who are also scrambling for users.

“For example, the currently popular short-video platforms like Douyin and Kuaishou are attracting more attention from users who might previously opt for a game on the smartphone,” Liu said, noting the two kinds of products have many overlapping users.

A lack of product innovation also played a part in Tencent’s revenue decline, he added, and it’s inevitable that the Shenzhen-based technology giant will experience further woes in the gaming business for the rest of the year.

The regulatory environment will be a big challenge for domestic game giants including Tencent and NetEase Inc, but they still have to do more work on research and development of quality content, Dong noted.

Shares of Hong Kong-listed Tencent fell 3.04 percent on Thursday while NASDAQlisted NetEase declined by 3.63 percent on Wednesday.