Tencent Stuns with Abysmal Earnings Report – Fails to Capitalize on PUBG and Monster Hunter: World
- Tencent suffers first quarterly profit drop in a decade
- $2.6 billion USD net income versus $2.8 billion analyst estimates
- Monster Hunter for PC was taken down due to government demands
Tencent, the world's largest investment company, and Chinese technology firm, reported today their quarterly earnings numbers and the results were quite disappointing. The firm is facing increasingly stiff regulation from Beijing and the brewing trade war between the United States and China is only complicating matters further.
Everything Tencent does can be described by one word: huge. They are the biggest video game company on the planet, and they're Asia's most valuable company ($573 billion USD in January 2018, more on that later).
They are the third or fourth most valuable social media company on the planet. WeChat, a wholly owned messaging service, now enjoys well over a billion users thanks to its dominance of the Chinese domestic market.
Tencent even owns the world's most profitable music service, Tencent Music Entertainment with 700 million active users and 120 million paying subscribers.
Chinese government slowing down Tencent with increased regulation
Gaming represents about 40 percent of overall revenue. Its been their largest growth driver for some time now but signs of a slow down are starting to creep up.
Tencent has the rights to run PUBG in China, but has yet to receive approval from the Chinese government that they may begin monetizing the game. Beyond that, regulators then stepped in and blocked Tencent from selling the Japanese-produced Monster Hunter: World on PC.
Executive management did tell listeners on the call that the regulatory pressure is "short term", however, the effects of this and PUBG's continued pummeling at the hand of Fortnite has shown in the numbers.
Stock prices tanked as much as 5 percent in early trading hours at the Hong Kong stock exchange. At the current price of 325.80 HKD per share, Tencent has lost about $160 billion in market capitalization since January, about the entire value of Netflix (NASDAQ:NFLX), or about nine complete Advanced Micro Devices (NASDAQ:AMD).
Many analysts are raising some very solid points about Tencent's long-term viability. The firm still boasts the largest ever messaging platform that it is quickly adding many services to - even banking services.
Our take is that Tencent is going to recover from this. The company is uniquely positioned in the Chinese market to take full advantage of the explosion of microtransaction revenue from mobile video games, thanks in part to its synergies between WeChat and the strength of its mobile video game portfolio. Don't forget, Tencent is now even bringing the world's most played video game to China: Fortnight.
Regulatory pressure may very well ease as Beijing won't want to hurt its homegrown companies, especially in light of the worsening US-China trade war. Monster Hunter: World will be allowed sooner or later and once PUBG is cleared for monetization there shouldn't be anything stopping Tencent from resuming its rapid ~40 percent annual growth rates its forecast for the next two years.