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Tencent posts first ever revenue decline as tough gaming regulation, Covid lockdowns bite

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Tencent has faced a number of headwinds in 2022 including a Covid-induced slowdown in the Chinese economy and a tougher market for gaming.
Bobby Yip | Reuters

Tencent posted its first ever quarterly year-on-year revenue decline as stricter regulations around gaming in China and a resurgence of Covid-19 in the world’s second-largest economy hit the technology giant.

Here’s how Tencent did in the second quarter, versus Refinitiv consensus estimates:

Revenue: 134.03 billion Chinese yuan ($19.78 billion) vs. 134.6 billion yuan expected, a decline of 3% year-on-year.Profit attributable to equity holders of the company: 18.62 billion yuan vs. 25.28 billion yuan expected, a decline of 56% year-on-year

During the quarter, Tencent faced macroeconomic headwinds stemming from a resurgence of Covid in China and subsequent lockdowns of major cities, including the financial metropolis of Shanghai. Authorities have committed to a zero-Covid policy which has caused disruptions across the world’s second-largest economy.

China’s economy grew just 0.4% in the second quarter, missing analyst expectations.

Meanwhile, China’s domestic video games industry has also faced challenges due to stricter regulation. Tencent makes about a third of its total revenue from gaming.

Last year, Chinese regulators introduced a rule limiting the amount of time children under 18-years-old could spend playing online games to a maximum of three hours a week and only during specific times.

Regulators also froze the approval of new games between July 2021 and April this year. In China, games need to get the green light from regulators before being released and monetized.

Analysts at China Renaissance said in a note published last month that Tencent launched just three mobile games in the second quarter. So the company has relied on its existing popular titles to generate revenue.

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