Tencent Rides Gaming, Advertising Uplift to Beat Quarterly Estimates

Tencent beat forecasts with a 29 percent jump in second-quarter profit, helped by an increase in revenue from popular games and growth in online advertising sales.

Robust demand for games such as Honor of Kings and PUBG Mobile offset a decrease in revenues from its battle royale title Peacekeeper Elite.

Net profit for the three months through June came in at CNY 42.6 billion (roughly Rs. 48,830 crores), above a Refinitiv consensus estimate of CNY 34.4 billion (roughly Rs. 39,430 crores). Profit was also boosted by an increase in the fair value assessment of some of the companies Tencent has invested in.

Revenue jumped 20 percent to CNY 138.3 billion (roughly Rs. 1,58,500 crores) with sales from mobile games up 13 percent.

The results follow a number of setbacks Tencent has experienced as a result of regulatory actions Chinese authorities have unleashed on the tech industry and other sectors.

Tencent has been barred from entering into exclusive music rights agreements and saw its $5.3-billion (roughly Rs. 39,360 crores) plan to merge DouYu and Huya blocked by China's market regulator last month.

Shares in the world's largest gaming firm by revenue also took a battering after a state media article described online games as "spiritual opium" and expressed concern about their impact on children.

As a result, Tencent temporarily lost its crown as Asia's most valuable company to chipmaker TSMC earlier this week and its shares are down some 8 percent since the August 3 article.

Tencent has since announced new measures to reduce the time and money children spend on games, starting with its most popular game, Honor of Kings. It said in Wednesday's earnings statement the moves went "beyond regulatory requirement."

It also emphasised that it was increasingly offering its technologies and expertise to companies and public services in an effort to contribute to the economy and society.

Some analysts have said that the market has overreacted to state media criticism of the gaming industry, noting that government calls to protect minors were not new and such players accounted for a small percentage of online gaming revenues.

Players aged under 16 accounted for only 2.6 percent of its gross game receipts in China during the second quarter, Tencent said.

© Thomson Reuters 2021