Tencent Holdings shifts focus as game revenue growth slows

Tencent Holdings says it will focus on business areas other than gaming after reporting its largest quarterly profit drop ever.

The company has been impacted by a Chinese government clampdown on online gaming products, fuelled by fears of addiction and excessive spending on games.   

“Our revenue mix is getting increasingly diversified, with fast growth from performance-based advertising and ‘other’ revenues,” said Tencent president Martin Lau after the results were released.

Tencent’s net profit for the December quarter fell 32 per cent, the largest decline since Tencent was listed in 2004, to 14.2 billion yuan (US$2.11 billion), although this was in part due to one-off losses from some subsidiaries.

Revenue from its games division grew 12 per cent, exactly half the growth achieved in the same period a year earlier. Lau told shareholders that new games would be released at a slower rate in the year ahead as the Chinese regulator has a backlog of applications from companies seeking to launch games onto the market. To mitigate slowing game sales in its home market, Tencent will focus on opportunities in other countries.

While Tencent may be best known in the west for its WeChat ecosystem – which now boasts 1.097 billion users – games are still a cornerstone of the business.

But new ventures, such as the company’s cloud business should make up for muted games growth in the years ahead. The cloud operations recorded its first full year of revenue, reaching 9.1 billion yuan ($1.36 billion).

Online advertising revenue, which makes up about 20 per cent of the company’s sales, achieved 38 per cent growth in the fourth quarter, slower than previously, impacted by Chinese consumers taking a more conservative approach to big-ticket purchases like motor vehicles.

Total group revenue for Tencent was up 28 per cent for the quarter, reaching 84.9 billion yuan ($12.655 billion).

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