Tencent expects online advertising revenue to be hit hard by China’s move to ban for-profit tutoring, Marketing & Advertising News, AND BrandEquity

By Brenda Goh

Chinese firm Tencent Holdings said on Wednesday that the internet industry would have to prepare for more regulations and uncertainties, but believed Beijing ultimately wanted to chart a long-term sustainable path for the industry.

The games and social media giant, which beat forecasts with a 29% jump in second-quarter profits, is among companies that have suffered the brunt of regulatory measures Chinese officials have unleashed on the industry. technology and other sectors.

“There will be short-term uncertainties and there will be a lot of new regulations to come,” Tencent chairman Martin Lau told analysts on a call after the company’s results, adding that regulators were “very focused on identifying and correcting industry behavior.”

He said such regulatory action should have been expected given how “loose” oversight of the industry had been relative to its size and importance. Tencent felt it was in a good position to “fully embrace this new environment,” he said.

“The goal is for the government to want to foster a long-term sustainable path for the industry. The government recognizes its economic and social importance and also the industry’s contribution to global competitiveness,” he said. he declares.

The executives also pointed out that Tencent offers its technologies and expertise to businesses and public services with the aim of contributing to the economy and society.

In a separate statement released on the same day as its earnings report, Tencent said it would invest 50 billion yuan ($ 7.71 billion) to promote “common prosperity” in China.

Tencent Music Entertainment Group Exceeded Wall Street Expectations for Second Quarter Profit …

Tencent has been barred from entering into exclusive music rights deals and saw its $ 5.3 billion plan to merge DouYu International Holdings Ltd and Huya Inc blocked by the Chinese market regulator last month. The shares of the world’s largest games company in terms of revenue were also rocked after a state media article called online games “spiritual opium” and expressed concern over it. their impact on children.

As a result, Tencent temporarily lost its crown of Asia’s most valuable company to chipmaker TSMC earlier this week. Its shares are down about 8% since the August 3 article.

Tencent has since announced new measures to reduce the time and money children spend playing games, starting with its most popular game, “Honor of Kings”. He said in Wednesday’s earnings release that the measures went “beyond regulatory requirements.”

Players under 16 made up just 2.6% of its gross gaming revenue in China in the second quarter, and Lau said the company was working with regulators to explore ways to cap the total time that players have. minors devote to games. in all industry titles.

Tencent also expects its online advertising revenue to be hit hard by China’s decision to ban for-profit tutoring in basic school subjects as these companies cut spending.

Asked whether the company sees a change in preferential tax treatment, CFO John Lo said tax breaks have declined over time, but they expect its rate to drop. 2021 effective taxation is about the same level as last year, which was 11%. .

Earlier this month, state media said China should stop giving tax breaks to online video game companies.

Net profit for the three months to June amounted to 42.6 billion yuan, above Refinitiv’s consensus estimate of 34.4 billion yuan, because the strong demand for games such as ” Honor of Kings “and” PUBG mobile “made up for a drop in revenue from its battle. royal title “Peacekeeper Elite”.

Profit was also boosted by an increase in the fair value assessment of some of the companies in which Tencent has invested.

Revenue jumped 20% to 138.3 billion yuan with mobile game sales up 13%.

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