China’s Tencent posts smaller than expected revenue growth; gaming falls short

By Josh Ye

HONG KONG (Reuters) -China’s Tencent Holdings posted a smaller-than-expected 11% rise in second-quarter revenue on Wednesday, as the country’s sputtering economic recovery weighed on the social media and gaming giant’s recovery from last year’s record downturn. The world’s largest video game company and operator of the WeChat messaging platform said revenue reached 149.20 billion yuan ($20.45 billion) for the three months ended June 30. That compared with the 151.73 billion yuan average of 21 analyst estimates compiled by Refinitiv.

Revenue growth was little changed from a 10.7% rise in the first quarter. Tencent posted a 1% revenue drop in the same period last year, when it reported its first ever sales decline, hit by Beijing’s bruising regulatory crackdown on its sprawling tech sector.

Regulatory concern has eased this year for China’s tech giants, including Tencent, with Chinese authorities keen to boost private sector confidence. But the world’s second-largest economy failed to surge after it lifted COVID-19 restrictions late last year.

Net profit rose 41% to 26.17 billion yuan as compared to the same period last year. But it fell under the 33.41 billion yuan average analyst estimate.

Tencent’s core gaming business experienced weaker-than-expected growth in the second quarter. Domestic gaming revenue stayed mostly flat at 31.8 billion yuan, while international gaming revenue rose 12% to 12.7 billion yuan, excluding the impact of currency movements.

Shawn Yang, an analyst at Blue Lotus Capital Advisors, said while Tencent’s old hits have delivered sub-par revenues due to lack of content, its new games are facing fierce competition from rival publishers such as NetEase Inc and miHoYo.

Revenue from online ads stood out as one of the bright spots. It grew 34% to 25 billion yuan as its TikTok-like short video service Video Accounts experienced increased demand.

Revenue from fintech and business services grew 15% to 48.6 billion yuan which the company said reflected expansion in both offline and online payment activities.

(Reporting by Josh Ye; Editing by Himani Sarkar and Raju Gopalakrishnan)