Tencent growth slows but profit advances 29% on strong advertising and gaming sales

Shenzhen company's fee-based subscriptions grew 13% to 229 million

Tencent's revenue climbed 20 per cent on annual basis to 138.3bn yuan in the second quarter. AP

Tencent Holdings, the world's largest gaming company, reported a 29 per cent annual increase in second-quarter net profit fuelled by advertising revenue and gaming demand.

Net profit rose to 42.6 billion Chinese yuan ($6.6bn) from the same period a year earlier as revenue jumped 20 per cent in the three months to the end of June, the company said in a statement on Wednesday. That surpassed the average Refinitiv estimate of 34.4bn yuan.

Net profit on a quarterly basis was down 10.8 per cent.

While the company's revenue climbed 20 per cent on an annual basis to 138.3bn yuan, this was its slowest pace of growth in two years as the gaming and social media giant faces continuing regulatory scrutiny from Chinese regulators.

"We enhanced our services and achieved healthy growth rates across our business lines, particularly business services and advertising, while our game revenue benefited from international growth,” Ma Huateng, chairman and chief executive of Tencent, said.

“We are increasingly deploying our technologies and expertise to help SMEs, public services, corporations collaborate internally and connect with their users externally, which we believe contributes to the real economy and to society at large,” said Mr Huateng.

The Shenzhen-headquartered company’s gaming division sales climbed 12 per cent yearly to 43bn yuan in the April-June period, primarily driven by the increase in revenue from games such as Honour of Kings and Pubg Mobile. It was the slowest pace of growth since the third quarter of 2019.

Chinese regulators have been engaged in a slew of antitrust probes since last year against monopolistic practices by some of the biggest technology players in the country including Alibaba.

They have targeted many of the industries in which Tencent and rival Alibaba operate in, including the online payments industry.

“The [second quarter] results show the resiliency of Tencent’s business in the face of a turbulent economic backdrop as well as its multiple growth drivers, but regulatory risk still remains,” Bloomberg Intelligence senior analyst Matthew Kanterman said.

Tencent’s online advertising sales increased 23 per cent year-on-year to 22.8bn yuan for the second quarter. Its FinTech and business services revenue soared 40 per cent to 41.9bn yuan.

“FinTech services revenue growth primarily reflected increasing digital payment transactions. Business services revenues increased rapidly year-on-year, due to digitalisation of public services and traditional industries,” Tencent said.

The company’s capital expenditures during the three months fell 27 per cent annually to 6.9bn yuan. Free cash flow decreased 39 per cent to 17.3bn yuan and net debt was 21bn yuan as of June 30.

Tencent’s fee-based VAS (value added services) subscriptions grew 13 per cent year-on-year to 229 million. Video subscriptions increased 9 per cent to 125 million, while music subscriptions jumped 41 per cent to 66 million.