Chinese internet giant Tencent suffered a second consecutive quarterly profit decline and its first ever revenue drop, as advertising and gaming sales during Q2 were hit by prolonged domestic Covid-19 (coronavirus) restrictions across many cities.

In a statement, chairman and CEO Pony Ma noted Tencent cut costs by exiting non-core businesses including online education, e-commerce and live streaming of games.

Tencent also reduced marketing spend and trimmed operating expenses.

President Martin Lau explained on an earnings call several of Tencent’s businesses were adversely affected by rising Covid-19 (coronavirus) cases and the resulting economic slowdown.

However, he said Tencent is positioning for broader revenue growth when the macro environment improves, noting it believes the regulatory environment in China is gradually normalising.

Lau added Tencent’s growth model is not dependent on the game business returning to revenue gains.

“We believe we can grow earnings even with the game business as it is now.”

Net profit fell 56 per cent year-on-year to CNY18.6 billion ($2.7 billion), due mainly to a drop in gains from other investments. Revenue declined 3 per cent to CNY134 billion.

Valued-added services, which include gaming, were flat at CNY71.7 billion. Domestic and international games revenue fell 1.1 per cent to CNY31.8 billion and 1.4 per cent to CNY10.7 billion, respectively.

Social networks sales were flat at CNY29.2 billion.

Online advertising decreased 18 per cent to CNY18.6 billion, with fintech and business services steady at CNY42.2. billion.

Sales and marketing expenses dropped 21 per cent to CNY7.9 billion and R&D spending 17 per cent to CNY15 billion.

Combined monthly active users (MAUs) of messaging service WeChat and Chinese version Weixin increased 3.8 per cent to 1.3 billion.

MAUs on its QQ mobile messaging platform fell 3.8 per cent to 568.7 million.

Capex declined 57 per cent to CNY3 billion.