Tencent Stocks Tumble after Profit Dropped for First Time in 13 Years

Tencent Stocks Tumble after Profit Dropped for First Time in 13 Years

China's largest social media and gaming firm said April-June profit fell to 17.87 billion yuan (2 billion pounds), compared with the 19.67 billion yuan average of 12 analyst estimates compiled by Thomson Reuters.

Tencent spinoff China Literature, mobile phone maker Xiaomi and China Tower - an infrastructure company launched by China's three large mobile networks - all "saw their share prices drop below where the stocks had priced in recent highly-anticipated public listings, in the latest sign of weakening investor demand for some China-focused companies", according to the Financial Times (porous paywall).

Holding up earnings this past quarter has been the company's inability to make money in China off Player Unknown Battleground, commonly called PUBG, a popular game that pits players against one another in a battle to the death on an island covered with weapons, vehicles and sniper nests.

Companies of all sizes - from Chinese-based multinational gaming giant Tencent to fledgling developers - are all impacted by this ban. Tencent's hugely popular mobile game, Honor of Kings, also fell victim to regulations previous year, over concerns that teens were spending too much time on it.

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A Tencent employee echoed a similar sentiment to Reuters, claiming that it suddenly became hard for any video games to get licensed by the government since reforms earlier this year. "We do believe it's not a matter of whether these games will be approved for monetization, but a matter of when". This has halted the growth of the video game industry in the market.

Tencent has been shifting its business away from the gaming industry. Tencent spent CNY25.5 billion in mergers and acquisitions in the second quarter, down from CNY54 billion in the first quarter, per the report.

The Chinese government has been halting its approvals of new online game licences as Chinese President Xi Jinping pushes a "purification" campaign in media and entertainment, according to reports.

Now the reason for the halting of the licenses among various others as well is also the rising gambling in some of the games and they want to be able to cater to that. "The fact that Monster Hunter got taken down shows that even Tencent isn't immune from regulatory crackdowns".

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"We consider the disruption to the game business to be temporary and primarily due to licensing suspension amid regulatory uncertainties; the business remains structurally intact, in our view", Daiwa Capital markets analyst John Choi said.

Tencent still hasn't received full approval to introduce desktop versions for PUBG and "Fortnite".

The hold-up has battered shares of market leaders like Tencent, which have plunged since the company said it had been ordered to remove hit game Monster Hunter: World from sale, only days after its debut.

"This is such a shocking stumble that Martin Lau probably felt he had to offer some explanation", Stone Fish said, referring to Tencent's president.

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