Tencent profit halves to 42b yuan as revenue slumps for first time

Tencent (0700) more than halved its net profit to 42 billion yuan (HK$48.6 billion) in the first half of this year and logged its first-ever revenue decline for the June quarter, hurt by a lack of game approvals and regulations that limit playing time, as well as lockdowns and a weak economy that squeezed ad sales.

Adjusted net income, which measures the performance of its core business operations, sank by 20 percent to 53.7 billion yuan for the six months, according to a filing yesterday.

Sales also dipped by 1 percent to 269.5 billion yuan.

In the second quarter, the revenue of the country's most valuable company fell a deeper-than-projected 3 percent to 134 billion yuan while net income also missed estimates, plunging 56 percent to 18.6 billion yuan.

Turnover from online games, Tencent's big profit driver, decreased both at home and abroad, with each declining by 1 percent.

Tencent has yet to receive a new game license from Chinese regulators after they temporarily halted approvals.

Revenue growth from the company's fintech and business services slowed to 1 percent to 42.2 billion yuan due to the impact of lockdowns on business activities.

Despite the pressures, there were some positive indicators. Online advertising revenue slid a record 18 percent in the quarter, but that was better than analysts feared. An adjusted net income of 28.1 billion yuan was about 15 percent above expectations.

Its social network services reported a 1 percent increase in revenue as WeChat earned more from its video content.

"In the short term, that may be its biggest growth driver," Shawn Yang, manager director of Blue Lotus Capital Advisor said, referring to WeChat video revenue.

"During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses," Pony Ma Huateng, chairman and chief executive of Tencent, said in the filing.

The WeChat operator also reported its first quarterly drop in the workforce in almost a decade as the layoffs rippling through the global tech sector finally engulf China's biggest social media player. It employed 110,715 at the end of June, down 4.7 percent from the end of March in the first staffing cutback since 2014.

"Results are quite weak, but an even worse scenario had been priced into the stock price prior to the earnings," said Charlie Chai, an analyst with 86Research.

Tencent's depositary receipts in Frankfurt dropped by 1.68 percent as of 7.40 pm after the results.