Tencent’s profits drop 13 percent in Q3 2019

Chinese gaming giant Tencent reported a 13 percent drop in its 2019 third-quarter profits. The decline is “worse than the most pessimistic analyst anticipated,” according to a Bloomberg report.

The company starts its holiday quarter facing a complex array of challenges, including a domestic slowdown, governmental regulation, and competition from its rivals.

Tencent’s smartphone gaming business reported a 25 percent increase in revenue, which is below the projected 32 percent growth, according to Reuters. Its PC games revenue dropped seven percent altogether.

The company suffered when the Chinese government stopped approving new games for monetization this year. Tencent received permission to monetize games, like Perfect World Mobile, in the first quarter of 2019.

The Chinese government’s curfew on online gaming for minors proves to be one of many regulatory bottlenecks the company will face in the future. The policy hurts Tencent’s access to the domestic market but encourages the company to spend more on “producing AAA-rated mobile titles that appeal to a global audience,” according to Bloomberg.

Another possible hurdle the company could encounter is the need for government approval to adapt U.S. games.

“We think for the next two quarters U.S. games will be harder to get government approvals for,” analyst Benjamin Wu said in an interview with Reuters.

The company’s third-quarter profit drop was also driven by rising costs, especially in its streaming service Tencent Video, and a decline in its media advertising business. Its profit breakdown was mitigated by its investments in sectors like Fintech and business services, as well as cloud services, according to Reuters.

Tencent’s mobile games portfolio recently gained a welcome addition in the form of Call of Duty: Mobile, which launched on Oct. 1. It reached over 35 million downloads in a matter of days and surpassed 100 million downloads in its first week, according to Bloomberg. The game’s popularity could drive growth in Tencent’s mobile games portfolio.

Tencent is a shareholder in important studios and developers in PC gaming. It fully owns Riot Games, the developer of League of Legends, and owns a 40 percent share of Fortnite’s Epic Games, as well as smaller shares in Ubisoft and Activision Blizzard.