Industry

China's Tencent second-quarter profit falls 2 percent, lags estimates

China's Tencent second-quarter profit falls 2 percent, lags estimates

The company's second quarter net profit fell 2 percent from the same period a year earlier to $2.7 billion.

Bureaucratic reshuffling at the top levels of China's government made it hard for the company to get the licensing required to make money on new games, Tencent's president, Martin Lau, explained on an earnings call.

China's Ministry of Culture and Tourism regulates the country's massive gaming industry.

Although China is notoriously stringent with media censorship, this game licensing freeze is taking the vetting process one step further.

There has been a sell off of Chinese tech and entertainment stocks, led by stock market darling Tencent, the company behind the ubiquitous-in-China WeChat mobile app. "We do believe it's not a matter of whether these games will be approved for monetization, but a matter of when". Tencent's hugely popular mobile game, Honor of Kings, also fell victim to regulations past year, over concerns that teens were spending too much time on it.

Now it has been a while since this the regulator took this step and by now some of the major companies in the Chinese Gaming Industry alongside worldwide companies, have started to feel the heat.

The smartphone games business, which includes smash hits PUBG and Fortnite posted 19 percent year-on-year growth to hit sales of $2.5 billion, but that was done 19 percent on that previous blockbuster quarter. "The big message is, if it can happen to Tencent, it can happen to anyone". It owns some of the biggest video game franchises in the world.

Lau said the company had secured approval to charge for at least 15 games before the freeze at China's General Administration of Press and Publication, providing an income buffer. 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.

Now the reason for the halting of the licenses among various others as well is also the rising gambling in some of the games and they want to be able to cater to that.

Tencent also said players who purchased "Monster Hunter: World" were entitled to a full refund until August 20.

In addition, the mobile version of PlayerUnknown's Battlegrounds has 14 million DAUs (not including Japan and Korea) and generated over $20 million in July outside China. This week, it got a slap on the wrist and pulled down "Monster Hunter: World" from its PC distribution service due to a content issue.

"This is such a shocking stumble Martin Lau probably felt he had to offer some explanation", Stone Fish said, referring to Tencent's president.

"We don't think that the regulation will impact the sector forever", he said.