Chinese gaming giant Tencent reported a drop in profitability in the first quarter of 2022. Its first-quarter revenue remained almost flat at $21.3 billion, while its profitability ratio fell 52%. Last year, Tencent reported $20.2 billion in revenue in the same period.
Tencent detailed non-IFRS data in the financial report. According to the report, the company’s annual operating profit fell 15% to $5.8 billion. On the other hand, the operating margin decreased by 5% compared to the same period of the previous year and was announced as 27%. Non-compound profits fell 24% to $4.1 billion.
Based on IFRS, the numbers vary slightly. On this basis, operating profit was 5.9 billion, down 34%. The operating margin fell from 42% to 27%. In light of these data, Tencent’s total profit fell 52% to $3.7 billion. It was reported that the net profit margin decreased from 36% to 18%.
Games account for about 32% of Tencent’s total revenues. The company’s gaming revenues in the Chinese domestic market decreased by 1% and were announced as 4.9 billion. This local decline was considered normal after the laws implemented in China aimed at protecting children from excessive play. In addition, last year, China said that young people could only play online games for one hour three days a week and set an upper limit for their gaming spending.
Game Revenues
League of Legends: Wild Rift and Fight of The Golden Spatula were among the games that increased Tencent’s revenues. The revenue growth in these two games offset the revenue drops in Call of Duty Mobile, Moonlight Blade Mobile, and other games.
Valorant and Clash of Clans games became Tencent’s rising games in the international market. These two games contributed $ 1.6 billion to revenues. On the other hand, PUBG Mobile’s revenue decreased in the “normalization process of post-COVID user spending.”
Tencent’s local gaming (China) revenue fell 1%, while international gaming revenue increased 1%. This whole cycle caused the company’s revenues to remain stable.
Restrictions in China directly affect the revenues of gaming companies. Tencent’s Chief Strategy Officer, James Mitchell, said small companies are more hurt by the restrictions. To the investors who asked him questions, he gave the following answer:
“We believe that generally speaking there will be fewer game approvals in the future than there were in the pre-2018 period. It’s a big part of the reason why in the last two years we’ve reconfigured our game business from top to bottom to focus on releasing and usually developing fewer, bigger budget and hopefully better games. And we think that we have been — we are really a pioneer in the industry in terms of doing that.”
Tencent predicts that apps in China will continue to be rigid for a while. The company has adapted quite well to the Chinese government’s restrictions so far. In the post-COVID normalization process, new regulations are expected to be introduced to these restrictions.
