Tencent defended a slowdown in revenue growth in its initial financial results that follow Beijing’s repression of games aimed at children.
Revenue grew by 13 percent in the three months to September 30, to Rmb142.4 billion ($ 22 billion) from the Rmb125.4 billion reported in the same period a year earlier. But sales missed the average forecast of Rmb145.4 billion in a Bloomberg poll, and growth was lower than the 20 percent and 25 percent growth rates of quarters two and one, respectively.
Martin Lau, the company’s president, said stricter regulation is “the new normal” both in China and internationally. He expected the amount of new rules to decrease in the future, although he did not provide details. “The impact on the industry will be less and less over time,” he told analysts on Wednesday.
China’s largest companies plagued by a series of new regulations as president Xi Jinping Introduces New “Common Wealth” Policy, which targeted everything from social inequality to consumer rights.
Video games, a key business area for Tencent, have come under intense scrutiny. The government has accused companies of making games that are too addictive, briefly calling them “mental opium” and how much time children could play.
Tencent said both its revenue from under-18s and the amount of playing time declined further. Minors were responsible for 0.7 percent of the company’s domestic games spent in September 2021, down from 6.4 percent in September 2020, the company said.
James Mitchell, the company’s chief strategy officer, said he did not expect the time constraints placed on minors to be extended to adults, and he stressed the importance of games for China’s soft power.
“It is beneficial for society at various levels to thrive. . . gaming industry, ”Mitchell said, pointing to the examples of Hollywood in America and Korea’s music industry. He added that a larger share of popular games in the US and Japan have now originated in China.
Company executives said advertising on education, gambling and insurance suffered during the quarter “due to macro challenges and regulations affecting certain key advertising sectors”.
International game revenue growth has surpassed the rate in China. Tencent has increased investment in overseas beginners this year, with 34 transactions done in the first six months of 2021.
Domestic gaming revenue in China rose 5 percent to Rmb 33.6 billion over the quarter, with games like Honor of Kings and Call of Duty helping boost its sales. International gambling revenue increased by 20 percent to Rmb11.3 billion on the back of games such as Appreciate and Collision between tribes, the company said Wednesday.
Ke Yan, an analyst at DZT Research who writes on the Smartkarma platform, said the slower growth rate in sales was partly due to the unexpected increase last year, driven by the pandemic.
Yan said although social networks and games slowed, fintech and business services “grew very well by 30 and 20 percent respectively” during the last quarter.
Tencent said it also explores opportunities in the “metaverse” in terms of games, social media and business.
“We have a lot of the technology and knowledge for us to explore the metaverse opportunity,” Lau said. He added that he believes the Chinese government supports the concept as long as the user experience complies with regulations.
Tencent said in the earnings statement that it “proactively embraces the new regulatory environment”.
Shares in the group closed 4.2 percent on Wednesday to HK $ 483.6 ($ 62.08) before the results were announced.