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Tencent Profits Up 19% Despite Gaming Industry Woes

Chinese new-media conglomerate Tencent, which has been battered by problems in its games division, unveiled third-quarter results showing a 19% increase of $2.97 billion in non-GAAP net profits, on revenues that were up 24% to $11.7 billion.

Expressed on a GAAP basis, which the company prefers, net profits were up 30% at $3.4 billion (RMB23.4 billion) during the three-month period.

Despite the regulatory problems that Tencent highlighted in its July financial statement, the company said that it currently has 15 games with monetization approval and that it released 10 titles in the quarter.

Online games revenue grew 7% year-on-year and 11% on the previous quarter to hit $2.81 billion (RMB19.5 billion) in the three months between July and September. PC games revenue, at $1.79 billion (RMB12.4 billion), sank by 15% year-on-year and 4% compared with the last quarter.

“For our game business we implemented stringent self-imposed limitations on games-playing by minors, which we believe put the game industry on a healthy and more solid foundation for future development,” said chairman and CEO Pony Ma Huateng.

In July, Tencent revealed that, since spring, Chinese government regulators had largely halted approvals of new game releases in China. Or they were not allowing companies to exploit the paid-for versions of games. That caused Tencent to announce earnings below analysts’ expectations and pointed to the government’s fundamental rethink of the games sector.

In the weeks that followed, that rethink became clearer as government additionally announced limits on games-playing by youngsters. Tencent responded by imposing its own restrictions on games usage and by cutting its games marketing budget.

The company’s shares, which opened the year at HK$417.8, came under increased pressure. The shares have dropped from HK$348.6 at the time of the July announcement to HK$278.1 at the end of trading on the Hong Kong Stock Exchange on Wednesday. The tumble has pushed Tencent out of the elite rank of the world’s 10 largest companies.

The company said that the number of users for its WeChat messaging program reached 1.08 billion, an increase of 11% year-on-year. Revenues from social media were up 15%.

The company reported that its Tencent Video streaming platform now counts 82 million paying subscribers, driven by interest in its “Ruyi’s Royal Love in the Palace” and anime series “Land of Warriors.” Across all of its value-added services, which span video, music and games, subscriptions grew by 23% to 154 million.

“At the end of the quarter we upgraded our organization to help enterprises and various industries to benefit from the new trend of industrial Internet through digitization and technology innovation and to provide customers with better integrated entertainment and social experiences, as well as to unify our advertising sales platforms,” said Ma. “We believe this strategic organizational upgrade will position us well for future long-term growth.”

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