Tribute to developer Kings, Tencent Rides Gaming, advertising surge to beat quarterly estimates

Tencent beat forecasts with a 29 percent jump in second-quarter profit, helped by an increase in popular game revenue and growth in online advertising sales.

Strong demand for games like Honor of Kings and PUBG Mobile offset a decrease in revenue from their Battle Royale Peacekeeper Elite title.

Net income for the three months to June amounted to CNY 42.6 billion (about INR 48.83 billion), above Refinitiv’s consensus estimate of CNY 34.4 billion (about INR 39,430 million). Profit was also driven by an increase in the fair value assessment of some of the companies in which Tencent invested.

Revenue jumped 20% to CNY 138.3 billion (about Rs. 1.58,500 million), with mobile game sales growing by 13%.

The results follow a series of setbacks Tencent has experienced as a result of regulatory actions that Chinese authorities have unleashed in the tech industry and other sectors.

Tencent was barred from entering into exclusive music rights deals and saw its $5.3 billion (about Rs. 39,360 crores) plan to merge DouYu and Huya blocked by China’s market regulator last month.

Shares in the world’s biggest gaming company by revenue also took a hit after a state media article described online gaming as “spiritual opium” and expressed concern about its impact on children.

As a result, Tencent temporarily lost its crown as Asia’s most valuable company to chip maker TSMC earlier this week and its shares have fallen about 8 percent since the Aug. 3 article.

Since then, Tencent has announced new measures to reduce the time and money children spend on games, starting with its most popular game, Honor of Kings. The company said in Wednesday’s earnings report that the measures went “beyond regulatory requirements”.

It also highlighted that it increasingly offers its technologies and expertise to companies and public services in an effort to contribute to the economy and society.

Some analysts said the market overreacted to state media criticism of the gaming industry, noting that the government’s calls to protect minors were not new and that these players represented a small percentage of online gaming revenues.

Players under the age of 16 accounted for just 2.6 percent of their gross gaming revenue in China during the second quarter, Tencent said.

© Thomson Reuters 2021


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