Tencent profits hit by gaming clampdown but advertising and cloud businesses keep pace

Tencent profits hit by China's gaming clampdown

Tencent has announced an anticipated decline in profits for the final quarter of 2018, mostly due to the Chinese government cracking down on new game approvals which hit the tech giant’s gaming business.

Operating profit decreased 33% year-on-year for the final quarter of 2018, though revenues still grew by 28% in the same period.

For the full year, Tencent hit USD$45,561 million in revenues and USD$14,228 million in profit.

The company, which is one of the biggest gaming businesses in the world by revenue, was hit by the Chinese government halting the approval of new games for over a month. Due to the pause, there’s still a significant backlog and some major Tencent titles are still awaiting approval.

The company announced its first restructuring at the end of 2018 and cutting of marketing budgets to try and counter its costs during this time, but its results suggest it wasn’t able to weather the damage completely.

Ma Huateng, chairman and chief executive officer of Tencent, said the business had started to refocus on other profitable areas of the business such as WeChat and its Mini Programs, as well as its cloud, payment and fintech services.

“In 2018, we continued to enhance our services within our established consumer internet domain and strengthened our initiatives in capturing the emerging Industrial Internet opportunities while sustaining healthy financial metrics. Users and enterprises embraced the powerful functionalities of our Mini Programs, which became the largest and most vibrant ecosystem of their kind in China," he said.

"We expanded our mobile game publishing presence globally and extended our digital content capabilities in China. We widened our leadership in mobile payment and enriched our fintech service offerings. Our organizational upgrade, together with our ongoing investments and innovations, position us to drive the evolution of consumer internet and to unleash the potential of Industrial Internet for both our partners and ourselves."

Tencent president Martin Lau also confirmed that the company will demote10% of its underperforming staff to make way for young and new talent.

According to Tencent, social networks revenues grew by 25% to RMB19,452 million and online advertising revenues increased by 38% to RMB17,033 million. It said social and other advertising revenues increased by 44% to RMB11,846 million, mostly due to an increase in advertising revenues from Weixin Moments, Mini Programs and QQ KanDian. Media advertising revenues grew by 26% to RMB5,187 million, driven by media platforms such as Tencent Video and Tencent News.

Tencent also announced a deal this week with gaming hardware and software business Razer, which will see Tencent’s games optimised for Razers hardware. According to Deal Street Asia, the move is timely due to the crackdown on gaming in China and the need to find new revenues streams for its existing games.

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