Tencent’s profit misses analysts' estimates even as it nets more gamers

The company picked up millions of new gamers during the coronavirus pandemic, but in-game purchases for marquee titles have slowed

Tencent's profit did not meet estimates as earnings slipped over lower in-game purchases and increasing competition. Reuters

Tencent Holdings quarterly earnings missed estimates, after China’s economic slowdown eroded its core gaming business and video content costs rose.

Net income came in at 21.6 billion yuan (Dh11.3bn) in the three months ended December that missed the average analysts’ estimate of 22.8bn yuan. Revenue rose to 105.8bn yuan, versus projections for 103.7bn yuan.

Tencent’s lower-than-anticipated profit reinforces investors’ concerns over a company that’s grappling with a slowing economy at home and increased rivalry from ByteDance. The company picked up millions of new gamers during the coronavirus pandemic, but in-game purchases for marquee titles like Honor of Kings dwindled in recent weeks after China began to go back to work. Beijing released data on Monday that suggests the world’s second largest economy may contract this quarter for the first time since 1989, denting the consumer and marketing spending Tencent relies on for revenue growth.

Tencent is also grappling with industry-specific issues. It must count on aging cash cows Honor of Kings and Peacekeeper Elite to sustain its pace of growth while it awaits Chinese government approval - a process that’s become much stricter and slower - for the commercial launch of potential smash hits like Call of Duty Mobile domestically. This week, the company finally kicked off sales of two popular Mario games for the Nintendo Switch console in China after getting the green light. Tencent is also testing a Twitter-style video and content feed on its ubiquitous WeChat app to win back users from ByteDance.

Shares of Tencent fell 4.5 per cent in Hong Kong before earnings were announced. While they had outperformed arch-foe Alibaba Group till as recently as March 12, Tencent's now shed about 8 per cent since Monday.