California Observer

Tencent, gaming giant, in first-ever revenue decline

Image Source: India Today

The internet giant Tencent reported its first-ever quarterly year-over-year revenue loss as a result of tighter gaming laws in China and the revival of COVID-19 in the second-largest economy in the world.

Tencent fell short of revenue and profit projections. In addition, Tencent experienced macroeconomic challenges throughout the quarter due to COVID’s revival in China and the ensuing city-wide lockdowns that followed, including Shanghai’s financial hub. The “Zero COVID” policy adopted by the authorities has disrupted the second-largest economy in the world.

Analyst estimates were not met by China’s second-quarter economic growth of just 0.4%. This impacted the company’s finance, cloud, and advertising revenues.

Meanwhile, China’s domestic video game market has encountered difficulties with greater regulation. Gaming generates nearly a third of Tencent’s overall income.

Government regulations affected Tencent

Chinese authorities implemented a restriction limiting the amount of time minors under the age of 18 could spend playing online games to no more than three hours per week and only during particular hours last year.

Regulators also put the approval of new games on hold from July 2021 to April of this year. Before a game is published and becomes monetizable in China, regulators must give the game the all-clear.

Analysts at China Renaissance said that Tencent only released three mobile games in the second quarter in a report that was published last month. As a result, the business has relied on its already-popular titles to bring in money.

According to Tencent, revenue from domestic games decreased 1% year over year to 31.8 billion yuan, while revenue from overseas games decreased by the same percentage to 10.7 billion yuan.

The worldwide gaming market “had a post-pandemic digestion period,” according to the Chinese technology giant, when the COVID pandemic and lockdowns were at their worst. Globally, gamers became the go-to form of entertainment, and businesses like Tencent and rival NetEase experienced significant growth. However, since nations have resumed operations, fewer individuals are playing video games, and businesses are finding it difficult to meet year-over-year comparisons.

As a result of transitional challenges, such as comparatively fewer significant game releases, lower user spending, and the installation of Minor protection measures, Tencent also stated that the Chinese market was going through “a similar digesting stage.”

The business reported that some of its enduringly popular games, such as PUBG Mobile and Honor of Kings, saw lower revenue in the second quarter.

In a conference call with analysts on Wednesday, Tencent President Martin Lau stated that the regulatory climate in China is “progressing from rectification to normalization,” which should “bode well for the industry over time.” In addition, he claimed that regulation is moving in a “more positive” direction in the gaming industry.

In the “near future,” Lau noted, Tencent should get gaming licenses from authorities. This will eventually boost the company’s domestic games business.

Chinese economy suffers from a slump

The lockdowns, COVID’s revival in China, and the ensuing economic slump have affected key aspects of Tencent’s operations.

Online ad revenue for the second quarter was 18.6 billion yuan, an 18% decrease from the same period last year.

Through its WeChat messaging app, which has more than 1 billion users, Tencent also runs WeChat Pay, one of China’s most popular mobile payment platforms. In addition, the business also operates a budding cloud computing division. These two’s revenue is combined under the heading “Fintech and Business Services.” This segment’s revenue increased by 1% annually to 42.2 billion yuan, slowing from the previous quarter.

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