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Tencent quarterly profit rises, company expects tighter data regulations

Written by Mengyuan Ge Published on     2 mins read

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Tencent Q2 profits surged nearly 30% despite regulatory crackdowns.

Chinese internet giant Tencent posted strong earnings for the second quarter of 2021, even while investors expressed concerns about the uncertainties brought on by shifting regulations for the internet industry.

Tencent’s net profit for the three months ended June jumped 29% year-on-year to RMB 42.8 billion (USD 6.6 billion). The company beat analysts’ average estimate of RMB 34 billion, according to data collected by Refinitiv.

Revenue soared 20% to RMB 138.3 billion (USD 21.33 billion), compared to RMB 114.9 billion (USD 16.5 billion) in the same period last year.

Notably, revenue from fintech and business services surged to RMB 41.9 billion (USD 6.45 billion), up 40% from last year. Tencent’s business services revenues grew rapidly due to the digitalization of public services and traditional industries, as well as income drawn from Bitauto, an automotive platform acquired by Tencent.

Sales from smartphone games were up by 13%, falling short of analysts’ forecasts.

Chinese tech companies whose stocks are listed in Hong Kong have dived this year due to antitrust crackdowns and tightening regulations for the sector. Tencent’s stock is down 22.45% so far this year, and its overall market cap has shrunk by HKD 1.15 trillion (USD 147.6 billion).

Earlier this month, after state media described online games as “spiritual opium,” Tencent said it would limit screen time and establish spending limits for minors who play its video games. The financial impact of the compliance measures will be reflected in the third quarter’s results.

However, Tencent’s management said minors under the age of 12 contribute only 0.3% of total gaming revenues, while minors younger than 16 years old account for 2.6%, suggesting the new statutes on underage gamers will have little effect on the company’s revenue.

Gaming aside, Tencent is one of the tech companies that is under scrutiny for its management of user data. It suspended new user registrations for its ubiquitous super app, WeChat, in July to “upgrade technology according to relevant laws and regulations.”

On Tuesday, the Chinese government’s State Council released new regulations for the protection of “critical information infrastructure” that will come into effect on September 1. The rules stipulate requirements for internet operators to beef up data security measures and formulate emergency plans.

“The regulations [on data] have been quite loose over the internet industry,” said Tencent president Martin Lau during Wednesday’s earnings call. “There will be uncertainties in the short-term future, as we expect more regulations should be coming, but we are confident that we will be fully compliant.”

Later that night, Tencent said it would double its funding for its corporate social responsibility initiatives to RMB 100 billion (USD 15.4 billion) and launch a “Common Prosperity Special Program.” This chimes with Chinese President Xi Jinping’s elaboration on the concept of “common prosperity,” which places an emphasis on social equality and socially balanced income rather than high, rapid growth.

Read this: Tencent Music reports strong Q2 results despite antitrust penalty expected to impact Q3 business

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