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China’s Tencent reports first revenue drop due to gambling regulations and COVID-19

An employee is seen at a Tencent booth at an exhibition during the China Internet Conference in Beijing, China, 13 July 2021. REUTERS/Tingshu Wang

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HONG KONG, Aug 17 (Reuters) – China’s Tencent Holdings (0700.HK) suffered its first quarterly revenue decline on Wednesday, hurt by a government crackdown on gaming permits and seasons, as well as COVID-19 lockdowns and a slowing economy squeezed ad sales.

The drop marks a low point for the gaming giant and owner of messaging platform WeChat, which has posted double-digit growth almost every quarter since its IPO in 2004, as Beijing’s crackdown on big tech companies that began in late 2020 slows its expansion.

Tencent plans to sell all or most of its $24 billion stake in food delivery company Meituan (3690.HK) to appease domestic regulators, Reuters reported on Tuesday. Continue reading

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The company said Wednesday that revenue fell 3% to 134 billion yuan ($19.78 billion) in the three months ended June 30, compared with 138.3 billion yuan a year earlier. It has fallen for two consecutive quarters and analysts have been expecting the decline.

“During the second quarter, we actively exited non-core businesses, streamlined our marketing spend and cut operational expenses,” said Ma Huateng, chairman and CEO of Tencent.

Net profit attributable to shareholders fell 56% to 18.6 billion yuan, below analysts’ estimate of 25 billion yuan.

China cut interest rates on Monday to revive demand as data showed a slowdown in July, suggesting the world’s second-biggest economy is struggling to shake off a second-quarter growth slump amid tough COVID restrictions. Continue reading

E-commerce giant Alibaba Group Holding Ltd (9988.HK) earlier this month reported flat quarterly sales growth for the first time in its history. Continue reading

According to sources, Tencent has reduced holdings in portfolio companies partly to reassure Chinese regulators and partly to book its juicy profits on those bets.

The Shenzhen-based giant has lost nearly 60% of its market value since peaking in February 2021 after Beijing’s regulators curbed the influence of a major internet company. However, the $373 billion company has held its own as China’s most valuable company.

Online gaming revenue, Tencent’s big profit driver, fell 1% both domestically and internationally. Tencent is yet to receive a new gaming license from Chinese regulators after they temporarily halted approvals.

Its social networking services reported a 1% increase in revenue as WeChat earned more from its video content.

“In the short term, this could be the biggest growth driver,” said Shawn Yang, manager director of Blue Lotus Capital Advisor, referring to WeChat’s video revenue.

Tencent reported 18.6 billion yuan ($2.74 billion) in ad revenue in the second quarter, down 18% as advertisers remain cautious with their budgets, but not as bad as some analysts were expecting so Yang.

Revenue growth from the company’s fintech and business services slowed to 1% to 42.2 billion yuan ($6.22 billion) due to the impact of lockdowns on business activities.

Shares in Prosus NV (PRX.AS), Tencent’s largest shareholder, fell 0.54% in Europe.

“Results are pretty weak, but ahead of the gains, an even worse scenario was priced into the stock price,” said Charlie Chai, an analyst at 86Research.

($1 = 6.7756 Chinese Renminbi Yuan)

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reporting by Josh Ye; Editing by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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