Tencent records overall growth in 2018 as gaming revenues stagnate

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Tencent saw overall growth in 2018 but stagnant gaming revenues for the fourth quarter of the year, according to earnings results released Thursday.

Total revenues for the three months ended Dec. 31 increased 28% year-on-year to around RMB 84.90 billion ($12.37 billion), and revenues for the full year 2018 increased 32% year-on-year to around RMB 312.69 billion.

Profits of the fourth quarter also dropped 35% to around RMB 14.02 billion.

Tencent’s online games revenues in the fourth quarter of 2018 was RMB 24.20 billion, with no year-on-year growth. The company described the situation as “broadly stable” compared to the same period of 2017.

Smartphone games revenues of the fourth quarter increased 12% year-on-year to RMB 19 billion, slowing down significantly compared to the 59% year-on-year growth rate for the same period in 2017.

Meanwhile, PC client games revenue decreased by 13% in the fourth quarter to around RMB 50.60 billion. The company explained that the drop is due to users’ continuing shift to mobile platforms.

Esme Pau, an analyst at China Tonghai Securities said that Tencent’s mobile game revenue in the fourth quarter is “slightly disappointing” and attributed it to Tencent’s failure to monetize some popular games.

Tencent is still waiting for approval to monetize three highly profitable titles: “Fortnite,” “PlayerUnknown’s Battlegrounds” (PUBG), and “PUBG Mobile.”

While “Fortnite” and “PUBG Mobile” are already distributed in China but unable to bring in revenue, “PUBG” is yet to be officially launched in the country.

The game approval authority of China, the State Administration of Press and Publications (SAPP) has since resumed game approvals, but the process is likely to take longer, and the number of approvals is likely to be lower, according to a recently published Tonghai Securities research report.

For 2019, Tencent plans to strengthen its portfolio by enhancing internal R&D capability and external partnerships. It also intends to step up overseas expansion through exploring new game genres and strengthening its overseas publishing capability, the company said.

Tencent has also started recruiting users for a closed beta for one of its cloud gaming service Start since Wednesday. Prior to that, it demonstrated another cloud gaming platform called Instant Play in February.

The company, however, could see higher costs as it tries to sustain legacy titles and traverse an increasingly complex regulatory landscape, said Pau. “In our view, the first half of 2019 will be challenging for its game segment,” she added.