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Tencent Reports Rare Profit Drop As Gaming Unit Falls Under Regulatory Scrutiny

17 August, 2018, 21:46 | Author: Arnold Gilbert
  • RiotGames

Chinese technology giant Tencent unveiled its first profit fall in 13 years after a sluggish performance from its mobile gaming division.

It is not going well for Tencent when it comes to this game. The iShares China Large-Cap ETF shed 3.8% to a 13-month low, as 49 of the 50 components lost ground.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. The Shenzhen-based company relies on new content to draw and keep users on WeChat, via which it sells in-game items and advertising to a billion-plus users. Sales were 73.7 billion yuan, missing analyst estimates. "We do believe it's not a matter of whether these games will be approved for monetization, but a matter of when", Lau added. Monthly active users climbed nearly 10 per cent to 1.06 billion in the June quarter - a massive population of consumers not just for games and ads but also fledgling services from video to financial services.

Video games in China have also been criticized for communicating non-socialist ideals (conflicting with the president's repeated mantra of "socialism with Chinese characteristics"), so the future of video games in China remains uncertain.

Bloomberg News reported Wednesday that China had stopped approving any new mobile games as part of a wider shake-up of the market.

Tencent said it would try to reinvigorate its mobile game revenue growth by extracting more value from existing popular titles, launching more role-playing games, and publishing more of its China-developed games internationally, such as Arena of Valor and PUBG Mobile.

China's biggest social networking and gaming company said it's seeking to reinvigorate mobile game revenue growth, via deepening engagement with existing titles and potential global monetization opportunities. Tencent said it was working closely with regulators to get the license, which allows it to make money on the game, for instance by selling virtual items within the app. Though this was 30 percent higher than a year earlier, it was below the 77.5 billion yuan average forecast by analysts. For China, Tencent and developer Bluehole substitute slime-green splatterings for oozing red blood so the game appears more like monsters fighting than people killing each other.

Still, it's rare for company officials to publicly suggest Beijing is to blame for anything, which is why it stood out that Tencent called out government actions for its profit weakness, said Asia Society senior fellow Isaac Stone Fish.

Tencent spinoff China Literature, mobile phone maker Xiaomi and China Tower - an infrastructure company launched by China's three large mobile networks - all "saw their share prices drop below where the stocks had priced in recent highly-anticipated public listings, in the latest sign of weakening investor demand for some China-focused companies", according to the Financial Times (porous paywall).

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