Tencent falls after earnings disappoint, but pain could be short term

Giulia March | Bloomberg | Getty Images

A flag bearing the Tencent logo is displayed alongside a Chinese flag outside the company’s offices in Beijing, China.

Tencent’s stock was in focus after the company posted a quarterly earnings report on Wednesday that missed analyst expectations.

Thursday morning trade saw the Chinese tech giant’s Hong Kong-listed stock sliding around 3 percent following the news. The company’s profit for the quarter ending in June dipped 2 percent to 17.87 billion yuan ($2.59 billion), which was weaker than analysts had anticipated. That was also the first decline in profit for the company in almost 13 years.

“The disappointment will be broad based from these results, particularly in a market that’s still sensitive to the downside globally at the moment,” said Douglas Morton, head of research at Northern Trust Capital Markets.

Being more specific in his critique of Tencent’s performance, Leo Sun, a technology specialist at The Motley Fool, said: “The big surprise was definitely the online gaming business.”

Speaking with CNBC’s “Squawk Box,” Sun said the 6 percent year-over-year growth from the segment was “pretty disappointing” as it usually reports numbers in the double digits. Furthermore, he added, most of the growth came from older games such as “Honor of Kings.”

To exacerbate matters, Sun pointed to the company’s reported 19 percent sequential fall in smartphone gaming revenue, saying it is a result of Tencent’s inability to obtain regulatory approval for the sale of in-game items in the mobile version of the popular battle royale game “PlayerUnknown’s Battlegrounds.”

According to the Wall Street Journal, the roadblock toward approval is largely due to “PlayerUnknown’s Battlegrounds” being a product developed by a company out of South Korea, a country that has had strained ties with China.

“PC games were also a problem,” Sun said, pointing to an 8 percent sequential fall in revenues as personal computer gamers made the transition toward mobile devices.