March 20, 2019 / 11:03 PM / 6 months ago

Tencent to post steepest profit fall in 13 years on games setback

    * Q4 net profit seen at 18.3 bln yuan, down 12 pct y/y
    * Revenue likely to grow 25 pct vs 51 pct growth year ago
    * Eyes on game approval updates and impact of economic
slowdown

    By Sijia Jiang
    HONG KONG, March 21 (Reuters) - Tencent Holdings          
is set to report on Thursday its sharpest quarterly profit
decline in more than 13 years, as its failure to launch new
blockbuster games due to China's regulatory review capped
revenue growth.
    China resumed new gaming approvals in December after a
nine-month hiatus partly due to concerns over violent content
and gaming addition. 
    But it has yet to allow Tencent, Asia's second-most valuable
listed company, to charge users for such hit games as
"PlayerUnKnown's Battlegrounds Mobile" and "Fortnite: Battle
Royale".                           
    Investors will be keenly watching for updates from Tencent's
top management about the games approval process and whether it
will participate in a multi-billion-dollar bid for South Korean
gaming firm Nexon          to beef up its games portfolio.
            
    Tencent is likely to report a 12 percent drop in net profit
for the quarter ended in December to 18.3 billion yuan ($2.7
billion), according to the average estimate of analysts compiled
by Refinitiv.
    That would mark its steepest profit decline since the third
quarter of 2005.
    Revenue is seen at a record 83 billion yuan, but growth will
halve to 25 percent from 51 percent a year ago, underscoring
damages incurred due to the regulatory hurdles.
    Jefferies analyst Karen Chan said in a note that Tencent's
near term mobile game revenue will likely remain under pressure
but would accelerate in the second half of 2019 with new
launches and a lower comparison base. "Long-term thesis remains
intact despite near-term mobile game growth volatility," she
wrote.    
    But Ming Lu, an analyst who publishes on Smartkarma, said he
believes Tencent benefited from the license suspension, as it
increased its market share during that period when smaller
players perished. "The market share increase in the active user
base will bring an increase in revenues during 2019," he said. 
    Tencent, which operates China's most popular social media
platform WeChat, also needs to address investor concerns about
the impact of China's slowing economy on its income from
consumers and advertisers as well as threat from new competitors
such as Tik Tok.  
    Chinese GDP grew at the slowest rate in nearly three decades
last year and is likely to further decelerate this year amid a
trade war with the United States.
    Tencent in September announced a restructuring aimed at
moving from being consumer-focused to serve industries as well,
and created a new Cloud and Smart Industries business group, but
those steps have yet to make a mark on its bottom line.
             
    Tencent's results could still beat expectations on
investment gains like they did in the third quarter as it took
several portfolio firms public last quarter including Tencent
Music Entertainment        , gaming developer iDreamsky
Technology Holdings           and fashion e-commerce firm Mogu
Inc         , analysts said.              
    Shares in Tencent have risen 18 percent so far this year,
giving it a market capitalisation of $449 billion, second only
in Asia to Chinese e-commerce firm Alibaba Group Holding
        . But the stock is still 22 percent below its peak of
HK$476.6 reached more than a year ago.
($1 = 7.8499 Hong Kong dollars)
($1 = 6.7123 Chinese yuan renminbi)

 (Reporting by Sijia Jiang; Editing by Miyoung Kim and
Muralikumar Anantharaman)
  
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