Tencent reported declining profit in the third quarter as a result of weaker results in its media advertising and PC games as well as lower than expected revenue, according to results the company released on Wednesday. Shares for the gaming giant dipped 2.7% by mid-day.
Why it matters: Tencent has been facing challenges posed by China’s slowing economy and tighter anti-addiction regulations, as well as intensifying competition from rivals such as Bytedance, which has become increasingly popular with advertisers.
“In games, we have solidified our number-one position in China with ‘Peacekeeper Elite’s’ popularity and extended our international success with ‘Call of Duty Mobile’ and ‘Teamfight Tactics.’ In fintech, we operate the largest mobile payment platform in China by DAU, and payment models, which increases user engagement.”
—Chairman and CEO Pony Ma during the earnings call
Details: Total revenue increased 21% year on year to RMB 97.2 billion but fell below analysts’ consensus estimate of RMB 99.0 billion.
- Tencent’s profit attributable to shareholders fell 13% year on year to RMB 20.4 billion, with net margin also dropping to 22% compared to 29% in the same period last year and 28% in the previous quarter.
- Total online games revenue reached RMB 28.6 billion, increasing 11% year on year, powered primarily by strong growth from Tencent’s smartphone games revenue, which rose 25% year on year to RMB 24.3 billion, accounting for 85.0% of the total.
- International markets have also become more important to the company’s gaming revenue. “International markets now contribute a teens percentage of our games revenue,” Tencent president Martin Lau said during the earnings call.
- PC client games revenues dropped 7% year on year due to a lower number of paying users from legacy titles such as “Dungeon Fighter Online.”
- Tencent also revealed its cloud revenue for a single quarter for the first time, which reached RMB 4.7 billion in the third quarter, around half of e-commerce giant Alibaba’s cloud sales for the same period.
- Revenue from online advertising rose 13% year on year, powered by ad placements in WeChat Moments. However, media advertising revenue fell 28% year on year to RMB 3.7 billion due to weaker performance from platforms such as Tencent Video, which was affected by the challenging economic environment and unpredictability in scheduling major content releases. “We believe the worst of this trend is now appears to be behind us,” Chief Strategy Officer James Mitchell said during the earnings call.
Context: In addition to challenging macro environments, Tencent has had to navigate controversy related to the National Basketball Association (NBA), which arose following a tweet from a Houston Rockets executive in support of the months-long Hong Kong protests.
- Tencent secured a five-year partnership with the NBA for $1.5 billion in July that gives the company exclusive rights to stream NBA games in China. Following the controversy, however, Tencent paused all NBA livestreams for five days.
- Tencent President Martin Lau said during the earnings call that the company hopes the problem will resolve itself over time.