Chinese gaming giant Tencent’s Q3 profit drop by 13%, misses estimates

China's Tencent Holdings Ltd reported a surprise 13% drop in quarterly profit on Wednesday hurt by a weaker-than-expected core smartphone games business and falls in media advertising and computer games revenue.

China's biggest gaming and social media company has faced a slowing economy, new rules on games to tackle addiction among young people and tighter controls on content.

Profit fell to 20.38 billion yuan ($2.91 billion) from 23.33 billion a year earlier and missed the 23.45 billion expected by analysts, 15 estimates compiled by Refinitiv for the three months to September 30 showed.

It was Tencent's lowest quarterly profit this year and its first profit fall since the fourth quarter of 2018.

Revenue rose 21% to 97.2 billion yuan but was short of the 98.2 billion expected by 17 analysts on average.

Its core smartphone gaming business, including major titles such as Honour of Kings, Perfect World Mobile and Peacekeeper Elite, reported a 25% rise in revenue to 24.3 billion yuan.

Jefferies analysts said this was weaker than their forecast of 32% growth.

China's regulator stopped approving new games for monetisation for about nine months last year, resulting in Tencent reporting its lowest annual profit growth in 13 years.

Approvals restarted in December, with Tencent receiving permission to monetise Perfect World Mobile in the first quarter of 2019.

Media advertising revenue fell 28% to 3.7 billion yuan due to lower intake on platforms including Tencent Video which the firm attributed in part to "unpredictability in scheduling major content releases."

Personal computer games revenue fell by 7% after a recent update of Dungeon Fighter Online attracted fewer paying users than a year earlier, it said.

Revenue in FinTech and Business Services, a category set up this year incorporating payment and cloud services, rose 36% to 26.8 billion yuan, helped by rapid growth in commercial payment services.

Cloud service revenue grew 80% to 4.7 billion yuan due to "increased consumption from existing customers and an expanded customer base in the education, financial, municipal services and retail sectors," Tencent said.

Tencent's Hong Kong-listed shares fell 0.85% on Wednesday ahead of its earnings release while the benchmark Hang Seng Index ended 1.82% lower.