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Tencent to cut reliance on China gaming after profit hit
* Q4 profit down 32 pct, worst quarterly drop since 2004 IPO
* Revenue up 28 pct, above expectations
* Poorer investment gains in 2018 versus 2017
* Says 10 pct of managers affected by personnel overhaul
(Adds management comments from press conference, details)
By Sijia Jiang
HONG KONG, March 21 (Reuters) - Tencent Holdings
signalled it will reduce its reliance on gaming in China, where
a regulatory review and one-off investment costs led to its
sharpest-ever quarterly profit drop and slowest annual profit
growth in 13 years.
"Our revenue mix is getting increasingly diversified, with
fast growth from performance-based advertising and 'other'
revenues," Tencent President Martin Lau said on Thursday.
Lau was referring to a segment that included Tencent's new
cloud business, which posted its first annual revenue of 9.1
billion yuan ($1.36 billion). Lau added Tencent will add a new
revenue category in its next earnings report to reflect the
contribution from such fast-growing new businesses.
Asia's second-most valuable company also said it will move
younger staff into middle management in a shake-up that will see
around 10 percent of its managers retire or become consultants.
Tencent is battling a slowing Chinese economy which could
weigh down the technology sector as well as prolonged regulatory
setbacks to its main business of gaming, with a nine-month
hiatus in new game approvals in China preventing it from making
money out of some of its most popular games.
Net profit for the September-December quarter dropped by
more than expected by 32 percent, the biggest decline since
Tencent went public in 2004, to 14.2 billion yuan, in part due
to one-off losses from its portfolio companies.
Smartphone games, Tencent's largest single revenue
generator, grew 12 percent in the fourth quarter from a year
earlier to 19 billion yuan, compared to 24 percent for 2018.
Lau warned Tencent's gaming releases in China this year
would be initially be slower than previous years, this is due to
a large backlog of requests the Chinese regulator has to go
through. Tencent will seek to grow gaming revenue from overseas
markets by exporting its games as well as investment, Lau said.
He declined to comment on Tencent's interest in bidding for
South Korean gaming firm Nexon Co, a deal which could
be worth as much as $13 billion.
Tencent's total revenue in the quarter rose 28 percent to
84.9 billion yuan, slightly ahead of an average estimate of 83
billion yuan from 19 analysts.
China's falling automobile sales amid the country's weakest
economic growth in nearly three decades meant advertisers,
especially big-ticket automobile firms, have "become more
conservative" in their spending, Lau said.
Online advertising, accounting for around a fifth of
Tencent's total revenue, grew at a slower pace of 38 percent in
the fourth quarter.
The company recorded net other gains totalling 16.7 billion
yuan for 2018, down from 20.14 billion yuan in 2017, mainly due
to poorer investment gains, which Lau blamed on cyclicality and
User numbers for WeChat edged up to 1.097 billion.
Shares in Tencent closed down 2 percent at HK$363 before the
results, giving it a market value of around $449 billion.
The stock has risen by 15.6 percent so far this year, but
the stock is still nearly 24 percent below its peak of HK$476.6
reached more than a year ago.
($1 = 6.6905 Chinese yuan renminbi)
(Reporting by Sijia Jiang; Editing by Miyoung Kim, Muralikumar
Anantharaman and Alexander Smith)
First Published: 2019-03-21 11:49:03
Updated 2019-03-21 15:49:18
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