Tencent Holdings Ltd. reported an 82% surge in net income, exceeding investor expectations and signaling a potential revival in China’s gaming industry. This growth was largely driven by the success of the summer blockbuster Dungeon & Fighter Mobile, which helped Tencent’s gaming division recover from two consecutive quarters of decline. The positive earnings report has renewed optimism that China’s $40 billion gaming market may be on the brink of a resurgence after years of regulatory challenges.
Dungeon & Fighter Mobile, released in May, has become the year’s biggest hit, boosting Tencent’s outlook. The company is also set to launch Black Myth: Wukong this month, further expanding its gaming portfolio. Tencent’s Chief Strategy Officer, James Mitchell, referred to Dungeon & Fighter Mobile as the company’s “next evergreen hit,” likening it to Honor of Kings, another successful title.
However, Tencent faces stiff competition from other Chinese gaming companies. NetEase Inc. and Mihoyo, the studio behind Genshin Impact, have both released new games that are gaining significant traction. NetEase’s Naraka: Bladepoint nearly matched Tencent’s marquee title in downloads on Apple’s iOS within its first two weeks.
While Tencent’s gaming sector showed strong performance, other areas of the business reflected China’s broader economic challenges. The fintech and cloud services division, Tencent’s largest segment, grew by just 4%, indicating a slowdown due to consumer and corporate belt-tightening. Despite these challenges, online advertising surged by 19%, contributing to improved gross margins.
Tencent’s total revenue for the April-June period was 161.1 billion yuan ($22.5 billion), with net income reaching 47.6 billion yuan, significantly higher than the estimated 39.9 billion yuan. This strong performance in domestic gaming is expected to continue, with projections of double-digit growth in the third quarter, according to Vey-Sern Ling, Senior Equity Advisor at UBP.