Tencent Holdings (TCEHY posted stronger-than-expected third quarter earnings Wednesday but a crackdown by authorities in China on the amount of time children can play video games in the world's biggest market has hit revenues in one of the group's key sectors.
Tecent said non-GAAP earnings came in at 2.061 yuan per share, up 15% from the same period last year and ahead of the FactSet compiled consensus of 1.91 yuan per share. Group revenues, the company said, rose 24% to 80.595 billion yuan ($11.6 billion) modestly shy of analysts' forecasts and the slowest growth rate in three years. Smartphone gaming revenues rose only 7%, however, to 19.5 billion yuan, as new rules on the time children can spend playing games such as Honor of Kings, League of Legends and Dungeon & Fighter, as well as a recent Chinese government freeze on game approvals, came into effect.
"As the leading game company in China, we are seeking to create a healthy game environment for children," Tencent said. "We implemented stringent self-imposed limitations on game playing by minors and recently introduced measures, such as real-ID verification process and face recognition check, to enhance the implementation. We believe the initiatives put the game industry on a more sustainable foundation for future development."
Tencent shares were marked 0.8% lower in Hong Kong trading prior to the earnings release and closed at HK$ 272.20 each, a move that extended the stock's year-to-date decline to 33% and values Asia's biggest tech company at around $331 billion.
Tencent's two main online platforms -- WeChat and Weixin -- saw average user growth slow to just 2.3% from the last quarter but still attracted more than 1.08 billion users each month and grew 10.85% from the same period last year.
"Mini Programs deepened penetration across different industries, such as transportation and healthcare," Tencent said. "User activity within Weixin benefited from strong growth in social video content viewing, with hundreds of millions of daily social video uploads."
China's gaming industry generates around $38 billion a year in sales, according to estimates, as developers tap into a social media landscape that boasts around 700 million daily users. Government officials, however, are keen to slow the industry's growth, and issued curbs on new game approvals last month and new guidelines for time spent playing last week.
"The use of electronic products for non-learning purposes should not exceed 15 minutes and should not be more than one hour per day," the Education Ministry said in a statement that included advice on taking frequent gaming breaks. The younger the children, "the shorter the time for continuous use of electronic products," the Ministry urged.