China’s gaming crackdown pushes Tencent to slowest profit growth in two years

Chinese gaming and social media giant Tencent Holdings posted its slowest quarterly profit growth in two years on Wednesday, hurt by a gaming crackdown, and said the outlook for the advertising sector would remain weak into next year.

Net profit for the three months through September rose 3% to 39.5 billion yuan ($6.18 billion), the company said in a statement. This beat analyst expectations who were predicting a decline, according to Refinitiv data.

Revenue climbed 13% to 142.4 billion yuan, slightly below expectations, and was the slowest quarterly growth since the company went public in 2004, Refinitiv data showed.

China’s largest company by market value was hit by new limits on the amount of time minors can spend playing video games. The government has not approved any new games since August.

Beijing’s year-long crackdown on its once-freewheeling internet industry has punished well-known companies for engaging in what were previously considered regular market practices, wiping billions of dollars off their market values.

“During the third quarter, the internet industry, including the domestic games industry, and certain advertiser categories, adapted to new regulatory and macroeconomic developments,” Tencent‘s chairman and CEO, Pony Ma, said in a statement.

“We are proactively embracing the new regulatory environment which we believe should contribute to a more sustainable development path for the industry,” he said.

Sales from mobile games rose 9%, the owner of games such as “Honor of Kings” and “PUBG mobile” said in a statement.

Tencent said minors accounted for 0.7% of domestic games time in September this year, down from 6.4% in September 2020, after the government’s new limits came into force at the beginning of that month.

The regulatory crackdown has also hit tutoring centres and the medical beauty industry and curbed appetite from such industries for advertising.

Tencent said its advertising revenue growth rate slowed in the period, citing such regulatory factors as well as macro challenges. It expected advertising pricing industry-wide to remain soft for several quarters but said the industry should adjust next year, it said.

Tencent has shed nearly 18% of its market value this year versus a 9% decline in the broader market.

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