China has halted the approval of new game licenses due to a "restructuring of power" in government agencies, Bloomberg reported on Wednesday. The Shenzhen-based company relies on new content to draw and keep users on its WeChat messaging service, over which it sells in-game items and advertising to a billion-plus users.
China's largest social media and gaming firm said April-June profit fell to 17.87 billion yuan (US$2.59 billion), lagging the 19.67 billion yuan average of 12 analyst estimates compiled by Thomson Reuters.
Mobile gaming revenue rose 19% year-on-year in the quarter to 17.6 billion yuan, representing a 19% sequential decline.
League numbers are down from their peak, but it's still one of the most-played games in the world and we're very happy with the numbers, and we think some of the new content we're putting out soon can only help with player numbers.
The outlook for Tencent, which has lost some $170 billion in market value since peaking in late January amid volatile trading, is overshadowed by tightening internet regulations in a country where the government can make or break a business.
After publisher Tencent licensed Monster Hunter: World for publishing in China via the giant's platform WeGame, it seemed the future was bright for the company in terms of revenue brought in by the massively popular game. "The fact that Monster Hunter got taken down shows that even Tencent isn't immune from regulatory crackdowns".
- Shares in Naspers, the South African group that is Tencent's largest shareholder, were down 7.5% at R308 319 by 11:00 GMT on August 15.
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Morton said he remained bullish on Tencent shares and that regulatory risk in China versus the rest of the global gaming market has always been there.
Hong Kong-listed shares in Tencent, which derives much of its income from games, dropped more than three per cent on Wednesday and are down around 10 per cent since last week's announcement.
China may resume approvals around September, Wu said.
Company chairman and chief executive Pony Ma Huateng, who let Lau respond to analysts' questions about the gaming business, said mobile games revenue was affected by external factors, but there was still "healthy growth in the number of people playing our mobile games each day in China and overseas". 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.
Tencent blamed its profit decline also on fewer investment gains.
Still, concerns remain about the prospects of the company's video games business. Sales were 73.7 billion yuan, missing analyst estimates. Tencent is still waiting for license approval for the desktop versions of PlayerUnknown's Battlegrounds and Fortnite, along with the mobile version of PUBG.