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Tencent’s profit growth slows after China tightens games rules

Tencent Holdings Ltd.’s third-quarter profit edged up 2.5% compared with the same period in 2020, a significant slowdown from earlier this year amid soft advertising income and continued weakness in its games business.

The company, in its quarterly earnings release, played up its commitment to China’s policy of common prosperity, and highlighted its efforts to ensure compliance with new games regulations amid heightened regulatory scrutiny on the broader technology sector.

Tencent, the world’s largest videogame developer, on Wednesday posted net profit of 39.51 billion yuan, equivalent to $6.18 billion, for the July-to-September quarter. Revenue grew 13% year over year to 142.37 billion yuan.

Tencent’s profit beat analyst estimates, but revenue fell short, according to FactSet. The company’s top-line growth was weighed down by weak games revenue growth, which has been slowing since the beginning of the year. Domestic games revenue rose 5%, while international games revenue grew 20%, compared with a 45% jump in the overall games segment during the same period last year. Tencent said it would report revenue growth for domestic and international games separately from now on.

Pressure also came from a soft advertising business, whose revenue rose by 5%. Tencent expects the business to remain weak for several quarters to come, citing macroeconomic challenges and regulations affecting certain key advertising sectors.

Tencent, like many other technology giants around the world, had booked lofty profits since the coronavirus pandemic started, as homebound consumers turned to online products and services.

But the upbeat momentum began to fade in recent months, as concerns grew about falling demand for online services as pandemic-triggered lockdowns eased, while China’s aggressive tightening of regulations stoked investor fears about the country’s internet sector.

Tencent has been hit particularly hard by Beijing’s tougher games rules. In August, authorities severely restricted younger gamers’ playtime to just three hours each week, and later put all new game approvals on hold. Since then, Tencent has repeatedly pledged to self-regulate and combat user addiction.

Recently, Tencent said it was shutting down Fortnite, a videogame developed by Epic Games Inc., in China from November. The game has been running under test mode for three years, though its China operator never received approval to sell in-app items and monetize the game.

New regulations on data security and stricter enforcement of antitrust rules have also raised investor worries about Tencent’s operations.

The string of regulatory actions sent Tencent shares tumbling to a one-year low in August, and they have lost more than 18% the past six months.

 

This story has been published from a wire agency feed without modifications to the text

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