tencent’s third quarter profits edge up 3 per cent amid regulatory crackdown, gaming licence freeze

Tencent Holdings, China’s biggest social media and gaming business, reported better-than-expected profits for the third quarter of 2021, beating estimates of 32.6 billion yuan (US$5.1 billion) to report a 3 per cent increase from the same period a year ago as it faces regulatory uncertainty from the country’s scrutiny over gaming and Big Tech companies.

The Hong Kong-listed company on Wednesday reported a net profit of 39.5 billion yuan in the quarter ended September, up from 38.54 billion yuan in the same period last year.

Revenue increased 13 per cent to 142.37 billion yuan, up from 125.4 billion yuan a year ago, but below the 145.41 billion yuan consensus estimate by 28 analysts. The last time Tencent’s missed revenue estimates was two years ago.

The results came amid a regulatory crackdown on Chinese Big Tech, with tighter scrutiny over a wide range of activities from how they can compete with rivals to the way they handle user data.

“We are proactively embracing the new regulatory environment which we believe should contribute to a more sustainable development path for the industry,” the company said in a statement on Wednesday.

Amid the crackdown, Tencent lost US$127 billion of market value this year. Its shares jumped 4.2 per cent to HK$483.6 at the close of trade on Wednesday, ahead of the earnings announcement.

For the first time, Tencent said it would break out revenue numbers for its domestic and international gaming businesses, to reflect “the increasing scale of our international games business”.

Domestic games revenues grew by 5 per cent to 33.6 billion yuan, driven by games including Honour of Kings, Call of Duty Mobile, and Moonlight Blade Mobile. International games revenues grew by 20 per cent to 11.3 billion yuan, or 28 per cent in constant currency terms, due to the strong performance of games including Valorant and Clash of Clans.

In the past quarter, Tencent was ordered to end exclusive music licensing deals with copyright holders. Its flagship all-purpose app WeChat, which had 1.26 billion monthly active users by September, was also targeted in Beijing’s campaign starting in July that ordered internet platforms to open up to each other, with Tencent vowing to follow the guidance of authorities.

The government’s tighter control over gaming, Tencent’s biggest revenue generator, has also added to the uncertainty and concerns over further regulatory pressure on the tech sector.

In September, Beijing limited gaming time for minors to three hours a week, between 8pm and 9pm on Fridays, Saturdays, Sundays and statutory holidays, to fight game addiction among the country’s youngsters. Tencent revealed earlier that players aged under 16 accounted for 2.6 per cent of game gross receipts in China.

“In the domestic games market, our industry-leading efforts in fully complying with new regulations significantly reduced minors’ game time and spending, fostering a healthier gameplay environment,” Tencent said on Wednesday.

Regulators have not approved any new game titles since the end of July, the longest freeze in processing new game licences since a nine-month hiatus in 2018.

Tencent has pledged support for the government’s calls for social responsibility. In response to Beijing’s call for common prosperity, the Shenzhen-based company vowed in August to spend 100 billion yuan in social initiatives ranging from basic science research to poverty alleviation.

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