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Chinese tech giant Tencent publishes the initial revenue drop

The $370 billion Chinese tech giant Tencent publishes the initial revenue drop

August 18, 2022: -Tencent published its initial quarterly revenue decreases as stricter regulations about gaming in China and a resurgence of Covid-19 in the world’s second-biggest economizing reached the technology giant.

Tencent missed revenue and profit forecasts. During the quarter, Tencent faced macroeconomic headwinds stemming from a resurgence of Covid in China and following lockdowns of significant cities, including the financial metropolis of Shanghai. Authorities have committed to a “Zero Covid” approach which has caused disruptions across the world’s second-biggest economy.

China’s economy expanded just 0.4% in the second quarter, missing analyst expectations. That impacted the company’s fintech, cloud, and advertising revenue.

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

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

Regulators 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 stated in a note published in the previous month that Tencent established just three mobile games in the second quarter. So the company has relied on its existing popular titles to generate revenue.

Tencent added that second-quarter domestic games revenue fell 1% year-on-year to 31.8 billion yuan, while global games revenue fell the same percentage amounting to 10.7 billion yuan.

The Chinese technology giant added that the international games market “experienced a post-pandemic digestion period.” In the height of the Covid pandemic and lockdowns in the world, people turned to games for entertainment, and companies such as Tencent and rival NetEase are experiencing a big boom. But since countries have re-opened, people are spending less time playing games, and the year-on-year comparisons for firms are tough to live up to.

Tencent also said the Chinese market showed “a similar digestion period due to transitional issues that include relatively fewer big game releases, lower user spending, and the implementation of Minor protection measures.”

The company saw decreased revenue in the second quarter from some long-established hit games like PUBG Mobile and Honor of Kings.

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Chinese tech giant Tencent publishes the initial revenue drop