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Tencent ascribed its disappointing Q2 2022 report due to a number of macroeconomic factors. These include Covid resurgence-induced lockdowns and tighter gaming laws for minors
Tencent recently posted its Q2 2022 earnings report featuring the Chinese tech giant’s first-ever revenue decline. Some factors that caused the revenue setback include stringent regulations in the Chinese gaming industry and the fallout from the Covid lockdown.
In its Q2 2022 report, Tencent posted revenue of 134.03 billion, or $19.78 billion. This sum is less than the general estimate of 134.6 billion yuan and represents a 3% drop year-over-year. In addition, the conglomerate holding company also reported profit attributable to its equity holders as 18.62 billion yuan for Q2. Once more, this pales in comparison to analysts’ expectation of 25.28 billion yuan. It also represents a steep 56% decline YoY.
During the quarter ended June 30th, Tencent weathered macroeconomic challenges that impacted its revenue and profit bottom line. For instance, the resurgence of Covid in China led to subsequent lockdowns in several key cities, stifling production and operations. In addition, the reimposition of the so-called “Zero Covid” policy further grounded economic activities across China, with Shanghai especially feeling the brunt. To put this in perspective, Shanghai’s population is roughly three times that of New York, and is home to the world’s busiest port. In addition, the Chinese city is also a hub for global transport, manufacturing, finance, and trade.
Because Shanghai reportedly accounted for 7.3% of China’s exports and 14.4% of imports in 2021, it was no surprise that the Covid restrictions on Chinese cities affected the country. For the second quarter, the East Asian nation saw a GDP growth of just 0.4%, below analysts’ forecast. In addition, the stagnated GDP growth also had an adverse effect on Tencent’s fintech, cloud, and advertising revenue.
Tencent Q2 2022 Bottom Line Impacted by Stricter Gaming Laws in China
Tencent also faced headwinds from its gaming market due to the stricter regulatory measures put in place by the Chinese government. In 2021, Beijing instituted a new rule limiting game time for children under 18 years old. According to this decree, minors can only spend a maximum of three hours a week playing online games. In addition, minors must restrict gaming to weekends and legal holidays. At the time, Niko Partners senior analyst Daniel Ahmad said:
“There are over 110 million minors that play video games in China today, and we expect the new limits to lead to a decline in the number of players and a reduction in the amount of time and money spent in game by those under 18.”
The gaming law substantially affected Tencent’s bottom line since it derives around a third of its total revenue from gaming. Meanwhile, in Q2 2021, 2.6% of gross game receipts in China came from players under 16 years old.
Tencent noted that the international games market contracted substantially post-pandemic due to the increased availability of options. During the height of Covid, subsequent lockdowns saw people resort to sustained gaming for entertainment and to pass the time. However, after lockdowns eased, more people went out instead.