Tencent shares dive on earnings miss, gaming worries
Regulators freeze approvals for video games that have driven revenue
Chinese tech giant Tencent, the parent company of the world’s largest video-game company, is adding to the some US$170 billion already lopped off its market value, as investor uncertainty regarding the sustainability of the company’s bread and butter grows.
Authorities in Beijing have reportedly halted approval of game licenses, stoking fears that the government will crack down on video games that have driven Tencent’s revenue growth. After that news and a disappointing earnings report, shares of the company dropped by more than 3% in Hong Kong trading on Wednesday.
The Chinese government has long expressed concerns about the effect video games have on child and adolescent development and did not lift a blanket ban on console games until 2015. More recently, there has been speculation that the government might enact restrictions on mobile games. Last year, Tencent proactively imposed restrictions on how long younger players can play a game per session.
The reported freeze on new approvals comes amid a restructuring of regulators that has been ongoing since March. According to a report in The Financial Times, there are an estimated 3,000 games awaiting approval for commercial launch. Those include the desktop versions of successful mobile titles Battlegrounds and Fortnite, per Bloomberg.
Hurdles facing the company’s gaming businesses helped pull down revenues for the second quarter, which came in 5% below consensus estimates. The Wall Street Journal reported that sales growth for smartphone games slowed dramatically to 19% from 69% in the same period a year earlier.
Tencent is the largest stock by market value in the MSCI Emerging Markets Index, a grouping that also includes South African-listed Naspers, which owns 31% of Tencent.