Chinese internet giant Tencent recorded sharply slower profit and revenue growth in Q3, as the country’s year-long regulatory crackdown impacted operations, particularly its domestic gaming business.
In an earnings call, chairman and CEO Pony Ma said its efforts to comply with new gaming regulations in China significantly reduced minors’ game time and spending, “fostering a healthier gameplay environment”.
He added the country’s new regulatory environment should contribute to a more sustainable development path for the industry.
Net profit in the quarter was up 3 per cent year-on-year to CNY39.5 billion ($6.2 billion), while revenue rose 13 per cent to CNY142.4 billion.
The Q3 report didn’t break down gaming revenue by mobile and PC, which it has in the past, but provided a domestic and international split. Domestic sales increased 5 per cent to CNY33.6 billion, while international revenues grew 20 per cent to CNY11.3 billion due to strong demand for Valorant and Clash of Clans.
The company said after implementing measures to comply with new regulations for children announced in August, minors accounted for 0.7 per cent of domestic gaming usage in September, down from 6.4 per cent in the same month in 2020. Gross receipts from minors fell to 1.1 per cent in September from 4.8 per cent a year earlier.
President Martin Lau said on the call the company is proactively assisting authorities in cracking down on illegal account transactions. He said Tencent believes stricter regulation is a new normal for the entire industry, and not just for China, but globally.
Looking ahead, chief strategy officer James Mitchell said the company expects weaknesses across a number of sectors, including gaming and education, to persist for several quarters, as authorities over the past year increased scrutiny of domestic interest companies and imposed stricter regulations.
Social networks revenue increased 7 per cent to CNY30.3 billion, driven by strong growth in video and music subscriptions services. Online advertising increased 5 per cent to CNY22.5 billion, while fintech and business services grew 30 per cent to CNY43.3 billion.
Combined monthly active users (MAUs) of messaging service WeChat and Chinese version Weixin increased 4.1 per cent to 1.26 billion; on its mobile messaging platform QQ MAUs fell 7.1 per cent to 573.7 million.
R&D expenses increased 39 per cent year-on-year to CNY13.7 billion, while non-operating capex jumped 62 per cent to CNY1.5 billion.Subscribe to our daily newsletter Back