A Tencent sign is seen at the World Internet Conference (WIC) in Wuzhen, Zhejiang province, China, October 20, 2019. REUTERS/Aly Song/File Photo License Rights Acquired
HONG KONG, Nov 15 (Reuters) – China’s Tencent Holdings ( 0700.HK ) said third-quarter revenue rose 10 percent as its games business rebounded from a regulatory crackdown on the country’s technology sector and online sales ad jumped.
Sales at the world’s biggest video game company and operator of messaging platform WeChat reached 154.6 billion yuan ($21.4 billion) – in line with market forecasts – in the three months to the end of September, the third straight quarter of growth of revenues.
Last year was one of the toughest years for Chinese video game companies since a regulatory crackdown starting in 2021 led to an eight-month freeze on new game licenses and more restrictions on underage playtime. Tencent eventually reported an annual revenue decline for the first time.
The industry revived this year after regulators resumed issuing gaming licenses.
Tencent’s domestic game revenue for the quarter grew 5%, driven by titles such as the multiplayer role-playing game “Lost Ark” and the Riot Games-developed shooter “Valorant” – both of which Tencent first launched in China in July.
In a call with analysts on Wednesday, Tencent highlighted nine games, including “Honor of Kings World,” “Valorant Mobile,” “Monster Hunter Mobile” and “Assassin’s Creed Mobile,” to be released.
“We have a significant pipeline of new games in development, including games that expand our own game IPs … and mobile games that use well-loved licensed IPs,” said Martin Lau, the company’s president, referring to the intellectual property .
In August, China’s video game sector achieved combined revenue of 29.2 billion yuan, the most in at least 20 months, according to CNG, a government-backed industry data firm.
Tencent shares closed up 4.8 percent ahead of earnings in Hong Kong. It’s up just 1.7% so far this year, outpacing the broader market’s (.HSI) 8.6% decline. In the US, its shares were up 5.4% in over-the-counter trading early Wednesday.
Regarding the impact of new U.S. chip export restrictions on its business, Tencent said it has stockpiled a large amount of Nvidia ( NVDA.O ) chips to support the development of its artificial intelligence (AI) model in the short term and that they will now also seek domestic supply of AI chips.
ADVERTISING PUSH
Tencent’s online advertising business also reported a solid quarter, posting a 20% jump in revenue, driven by strong demand for video content advertising.
Tencent said e-commerce companies have “become a much bigger contributor to (the company’s) advertising revenue in recent periods”.
E-commerce companies tend to advertise in the second half of the year, explaining the spike in ad sales that Tencent experienced in the quarter.
Its financial technology business, its second-biggest business unit, reported a 16 percent rise in sales after improved performance from wealth management services and online transactions.
Net profit fell 9 percent to 36.1 billion yuan from a year earlier, when the company had a strong quarter after selling stakes in portfolio companies such as Sea.
Tencent also noted that overall gross margin continued to improve in the third quarter. It approached 50%, reaching levels last seen in 2018. The company attributed the improvement to its desire to kill unprofitable businesses, a strategy it has clarified in recent quarters.
Pony Ma, chairman of Tencent, said in the third quarter the company continued to “refocus from less scalable activities” while emphasizing high-margin revenue streams.
($1 = 7.2405 Chinese Yuan)
Reporting by Josh Yeh; Editing by Myong Kim and Christopher Cushing
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