(Bloomberg) -- Tencent Holdings Ltd. slid more than 2% after reporting earnings below the lowest analyst’s estimate, underscoring the Chinese internet giant’s challenges in reviving growth during an economic slowdown.
The social media goliath’s profit plummeted 13% last quarter -- worse than the most pessimistic analyst anticipated -- after an economic downturn depressed advertising and prompted charges within its huge portfolio of investments. Marketers fled to nurse shrinking budgets after shows got delayed. And costs jumped 21% as Tencent hoovered up content to feed its Netflix-style service.
Tencent was supposed to hit the comeback trail this year after a nine-month freeze on game approvals gutted its most profitable business in 2018. But the slowdown, competition from up-and-comer ByteDance Inc. for internet traffic and advertising, and now tricky political considerations is snarling that recovery. That’s a key reason its stock has vastly under-performed rival Alibaba Group Holding Ltd. this year, creating a gap of roughly $90 billion in their market valuation.
Read more: Tencent Will Have to Wait a Little Longer for Its Comeback
On Wednesday, the company reported net income of 20.4 billion yuan ($2.9 billion) in the September quarter. That came alongside a 90% drop in one-time gains -- an item that tracks its vast portfolio of startups around the world -- after it swallowed charges for investments in connected automobiles.
“The PC gaming and media advertising business was under pressure,” said David Dai, an analyst with Bernstein. “Fintech and cloud are doing well but we need to wait a bit longer to see them contribute more significant profit.”
Tencent might see light at the end of the tunnel in the fourth quarter. It hit pay-dirt with its smartphone adaptation of Call of Duty. The game garnered more than 100 million downloads in the first week, putting it ahead of Nintendo Co.’s Mario Kart Tour. That was four times more than Fortnite’s mobile version managed. That strong debut positioned it to join the other mega cash-cows in Tencent’s stable: old favorite Honour of Kings and 2019’s standout hit, Peacekeeper Elite.
Read more: Tencent Analysts See Turnaround Delay as Media Ads Disappoint
What Bloomberg Intelligence Says
Robust growth in mobile games should continue, as deferred revenue from Peacekeeper Elite is recognized in coming quarters. Tencent’s rapid internationalization of its game operations will also help.
- Vey-Sern Ling, analyst
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To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net
To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan
©2019 Bloomberg L.P.
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