China's Tencent second-quarter profit falls two percent, first decline in nearly 13 years

By Sijia Jiang

HONG KONG (Reuters) - Chinese technology giant Tencent Holdings Ltd on Wednesday reported a surprise 2 percent fall in second-quarter net profit, the first decline in nearly 13 years, due to slower than expected gaming growth and weak investment gains.

China's largest social media and gaming firm said April-June profit fell to 17.87 billion yuan ($2.59 billion), lagging the 19.67 billion yuan average of 12 analyst estimates compiled by Thomson Reuters.

The outlook for the most valuable company listed in Asia has been overshadowed by a slowdown in mobile gaming and concerns over regulatory setbacks as the Chinese regulator this week blocked Tencent's sale of the blockbuster game "Monster Hunter: World" upon debut.

Tencent said it would try to reinvigorate its mobile game revenue growth by extracting more value from existing popular titles, launching more role-playing games, and publishing more of its China-developed games internationally.

Mobile gaming revenue rose 19 percent year-on-year in the June quarter to 17.6 billion yuan, representing a quarter-on-quarter decline of 19 percent. The company blamed that on "non-monetisation of popular tactical tournament games and timing of new game releases".

Amid an industry-wide freeze on new game approvals in China since March, Tencent has yet to receive the licence to sell survival-themed game PlayerUnknowns' Battlegrounds and to introduce Fortnite, a tactical tournament game developed by its portfolio company Epic Games.

Trading in its shares has been volatile this year. Since the stock peaked in January, Tencent has lost around $170 billion in market value.

Revenue rose 30 percent to 73.68 billion yuan in the latest quarter, lagging 16 analysts' average estimate of 77.5 billion yuan. That represented the slowest quarterly revenue growth since the second quarter of 2015.

Revenue from PC games dropped 5 percent year-on-year and 8 percent quarter-on-quarter.

"We view our internally developed games Arena of Valor and PUBG MOBILE, as highly suitable for expansion to gamers outside China," Tencent said in the filing, adding Arena of Valor, a fantasy role-playing battle game, has grossed more than $30 million per month in the first half of the year outside China, while PUBG MOBILE grossed over $20 million in July outside China.

Users of its popular WeChat app grew incrementally to 1.06 billion.

Tencent said payment and related financial services and its cloud services helped its "others" business category record an 81 percent revenue increase to 17.5 billion yuan.

A Chinese central bank initiative that is expected to raise the centralised deposit ratio requirement for payment service providers to 100 percent in the near future - thus eroding their interest income - continues to adversely affects Tencent's payment business revenue and gross margins, it said.

"We are currently approximately mid-way through this transition, and are seeking to mitigate the impact through various monetisation initiatives elsewhere in our payment and related financial services," it said.

Tencent's net other gains decreased by 51 percent in the quarter to 2.5 billion yuan, mainly due to a decline in gains in investment disposals.

($1 = 6.9099 Chinese yuan renminbi)

(Reporting by Sijia Jiang; Editing by Christopher Cushing and Mark Potter)