Tencent Q2 Revenues Miss Estimates Amid China Tech Clampdown, Tough COVID Rules

© Reuters.

By Scott Kanowsky

AiVIF.com -- Tencent Holdings Ltd (HK:0700) has reported lower-than-expected sales in the second quarter as the internet giant saw demand negatively impacted by strict COVID-19 restrictions in China and a wide-ranging tech crackdown by Beijing.

Quarterly revenue at Tencent - the world's largest video game maker - declined by 3% year-on-year to RMB134.0 billion, missing estimates of RMB134.55 billion. The decrease marks the fifth straight quarter that the top-line figure has come in under analyst forecasts.

Tencent's net profit also declined to RMB18.6 billion from RMB43 billion a year ago, below expectations of RMB25 billion.

Weighing heavily on the results was sluggish revenue growth at the group's key FinTech and Business Services divisions, which account for about half of its total sales. These units, which include Tencent's mega-popular mobile payments service known as WeChat Pay and a cloud computing business, saw revenue rise by just 1% to RMB42.2 billion, down from the prior quarter.

"FinTech Services revenue growth was slower relative to prior quarters as COVID-19 resurgence temporarily impacted commercial payment activities in April and May," Tencent said in a statement. It added that the fall in business services revenues reflects "our proactive efforts to scale back loss-making activities."

Tencent's domestic gaming division was also hurt by strict new rules in China over the amount of hours children can play a week and slower government approvals on new titles.

The company said it faced "transitional issues including relatively fewer big game releases, lower user spending, and the implementation of minor protection measures."

Meanwhile, the government has accused Tencent and its peers of invading user privacy, manipulating the market, and engaging in anti-competitive behavior. Tencent, as well as e-commerce giant Alibaba (NYSE:BABA), have been repeatedly slapped with steep fines since 2021.

Fears of increased regulatory scrutiny have also seen Tencent roll back some services, including a move to suspend sales on its non-fungible token platform Huanhe.