China’s Tencent misses expectations despite fastest profit rise since late 2021

Tencent on Wednesday reported a surge in profit for the second quarter, but missed expectations, as its cost-cutting measures began to pay off and sales rose in its core gaming business and cloud and fintech unit.

Here’s how Tencent did in the second quarter, versus Refinitiv consensus estimates:

• Revenue: 149.21 billion Chinese yuan ($20.46 billion) vs. 151.73 billion yuan expected, representing a rise of 11% year-on-year.
• Profit attributable to equity holders of the company: 26.17 billion Chinese yuan vs 33.42 billion yuan. That is a 41% year-on-year rise.

Tencent is now starting to see the benefits of the cost-cutting drive it embarked on last year, when it exited non-core businesses and tightened marketing spending.

Tencent has now reported three straight quarters of revenue growth, as the Chinese technology giant recovers from the headwinds of a tough 2022.

Firstly, its core gaming business slowed dramatically relative to comparisons with 2021, when people relied more on indoors entertainment because of the spread of the pandemic. Tencent is one of the world’s biggest online gaming companies.

Secondly, Chinese authorities froze the approval of new games for several months and only restarted the process in April 2022. It took a few months for the regulators after this to approve games published by Tencent.

Tencent, which is the owner of China’s biggest messaging app WeChat, is now starting to see its businesses from gaming to cloud computing pick up.

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