Tencent Disappoints on Earnings as Its Games Face Regulatory Hurdles



BEIJING—

Tencent Holdings
Ltd.


TCEHY -3.39%

reported disappointing revenue and profit for its second quarter as the Chinese internet giant struggles with regulatory hurdles for its gaming business.

The Shenzhen-based company said Wednesday net profit dropped 2% to 17.9 billion yuan ($2.7 billion) for the three months ended June 30. Revenue rose 30% to 73.7 billion yuan. Analysts polled by S&P Global Market Intelligence had forecast net profit of 18.7 billion yuan and revenue of 77.8 billion.

It is “a huge miss,” said Shawn Yang, executive director at Blue Lotus Capital Advisors. “The second-quarter results—it isn’t very good.”

Tencent has been plagued by a string of regulatory hurdles in recent months as it struggled to get videogames approved for sale by Chinese regulators.

Games are its biggest source of revenue.

On Monday, the company said Chinese regulators had blocked sales of “Monster Hunter: World” less than a week after it had launched on its WeGame distribution platform. Its gaming license had been canceled after Chinese regulators received “a large number of complaints,” the company said in a statement. Monster Hunter had been expected to boost its stagnant PC games business, which fell 8% in the second quarter compared with the first three months of the year.

Compared with its first quarter, mobile gaming revenue fell 19% to 17.6 billion yuan. That is “mainly due to non-monetization of popular tactical games and timing of new game releases,” Tencent said Wednesday in a statement.

The company has failed to make money off two mobile versions of an extremely popular PC game called “PlayerUnknown’s Battlegrounds.” In 2017, Tencent licensed the rights to PUBG, as it is known to fans, from South Korean developer Bluehole Inc. and then rolled out the free mobile games earlier this year. But China’s media regulator has yet to approve them for in-game purchases.

In order to monetize games, new titles have to be approved by two regulatory bodies, the National Radio and Television Administration and the Ministry of Culture and Tourism. The National Radio and Television Administration hasn’t approved new games since March, part of a restructuring of the regulatory agencies that oversee the industry, analysts said.

Regulators are “still in a power transition period which makes it a little bit unclear who should be responsible for game approval at this stage,” Mr. Yang of Blue Lotus said. “Everything has stopped for about five months.”

Write to Shan Li at shan.li@wsj.com



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