Chinese tech giant Tencent posted its results for the third quarter of 2022 on Wednesday, reporting RMB 140.1 billion ($19.7 billion) in revenue, a 2% year-on-year decline. The figure missed analysts’ average estimation of RMB 141.6 billion, according to Reuters. Profit attributable to equity holders of Tencent for the quarter was RMB 39.9 billion, a 1% year-on-year increase and a significant achievement considering the company saw a more than 50% yearly fall in that figure for the first and second quarters of 2022.

The data follows a number of “adjustments” that Tencent has made to its multiple businesses, and also reveals that its gaming sector, which accounted for 31% of the company’s overall revenue in the third quarter, recorded consistent growth overseas. 

Why it matters: Even as one of China’s most influential technology giants, Tencent is still struggling to fight against the macro downturn. As with other Chinese tech firms, it’s gaming arm has been increasingly looking overseas for growth, investing in international assets and working with partners to develop more titles for global publication. The return on this strategy is now evident in the company’s financial results.

Details: According to Tencent’s financial results, revenue from domestic games continues to fall this year, but international games have consistently contributed to revenue growth. In the past two years, Tencent’s domestic gaming business peaked at RMB 33.6 billion in revenue for the third quarter of 2021. Since then, it has dropped each quarter, mainly due to China’s gaming regulations aimed at minor protection, which include time limits for those under 18 and took effect in Sept 2021.

  • For the reported quarter, revenue from Tencent’s domestic gaming business declined 2% quarterly and 7% yearly to RMB 31.2 billion, according to the company’s financial results and our calculations.
  • According to Tencent, time spent on gaming by under 18s in China saw a sharp 92% drop in July compared with the same month last year. In July 2022, gameplay time by minors accounted for just 0.7% of the domestic total, the firm said.
  • The situation was made more complex by the unpredictable nature of gaming license approvals in the country (the National Press and Publication Administration did not issue any licenses last month). However, Tencent executives struck an optimistic tone on Wednesday’s earnings call, saying that the company had acquired a license in September and believed that there would be more licenses approved soon.
  • By contrast, revenue from Tencent’s international games saw steady quarterly growth. For the reported period, there was a 9% quarterly and 4% yearly increase in revenue for the company’s overseas gaming business, generating RMB 11.7 billion. In its most recent financial report, Tencent attributed the data to “robust growth from Valorant, the successful launch of Tower of Fantasy, and an expanded game portfolio at Miniclip, versus decreased revenue from PUBG mobile.”
  • Regarding Tencent’s other businesses in the third quarter, CEO Pony Ma stated that “we started to benefit from the adjustments that we have made to reposition ourselves for a new industry paradigm. We activated in-feed advertisements in Video Accounts, and executed cost efficiency initiatives which re-focused us on core activities and controlled our cost growth.” He added that the firm had seen “a growth in non-IFRS earnings after four quarters of decline” due to these achievements, while also highlighting the breakthrough in international games publishing.

Context: Tencent is the largest video gaming firm in China and the second largest in the world by market cap. The tech giant also built a social network empire with QQ and WeChat (Weixin in China).

  • Tencent faced mounting challenges relating to policy uncertainty and a macroeconomic downturn in 2022. The company’s stock price dropped to a five-year low by the end of October, according to data from Google Finance. 
  • The company announced on Wednesday that it would divest over 90% of its $20.4 billion valued stake in Meituan to shareholders as a special dividend, following a similar divestment from JD.
  • In the gaming sphere, the firm made major investments directly or indirectly this year in notable developers and publishers such as Ubisoft, Elden Ring developer FromSoftware, and Subway Surfers developer Sybo.
  • Tencent is also building out content universes for its most popular titles Honor of Kings and League of Legends, as an additional means of increasing profit.

Ward Zhou is a tech reporter based in Shanghai. He covers stories about industry of digital content, hardware, and anything geek. Reach him via ward.zhou[a] or Twitter @zhounanyu.