By CUI Peng

Tencent’s revenue dropped 3 percent year-over-year in Q2 to 13.4 billion yuan (1.98 billion), the first quarterly decline in the company’s history. Profit was down 17 percent from Q2 last year but was 10 percent higher than that of Q1 quarter.

Chairman and CEO Pony Ma said Tencent has been cutting many “non-core, non-essential businesses” to control costs, but its operating profit is less than half of what it was in Q2 last year and almost 20 percent lower than last quarter’s.

Gaming revenue fell 1 percent both inside China and abroad. The business is still recovering from last year’s regulatory changes which froze new game approvals and restricted playing time for teenagers. Outside China, people have been spending less time on their phones as businesses reopen after the pandemic.

Miniclip, a fully-owned Tencent subsidiary, acquired game developer SYBO Games in July. Its flagship game Subway Surfers was the most downloaded mobile game in the period between 2012 and 2019. Miniclip’s daily active users increased from 30 million to 70 million in the month after the acquisition.

Social networks made 29.2 billion yuan. WeChat now has nearly 1.3 billion users, and is still seeing fast growth in its relatively new video function - daily watch time increased more than 200 percent and daily uploads more than 100 percent in the past year. But the gains in Wechat video are offset by worsening performance in music and video streaming, despite the fact their subscribers increased by 2 percent. Overall Social network revenue was flat from the previous quarter.

Ad revenue dropped 18 percent to 18.6 billion yuan due to low demand, especially from previous big spenders in education, finance and mobile internet. The decline is similar in scale for social media ads (17 percent down to 16.1 billion yuan) and ads on Tencent’s own aggregator sites (25 percent down to 2.5 billion yuan). It is also worth noting that WeChat Video started selling ads in July.

Fintech and Business Services revenue remained flat at 42.2 billion. Commercial payment almost did not grow due to business closures during Covid outbreaks. Cloud revenue declined, but Tencent said this was a good thing because many previously money-losing businesses have been cut. Cloud-based database service TDSQL grew more than 30 percent and now makes up about 5 percent of Cloud’s revenue.

Tencent cut staff to 110,715 in Q2, 5500 fewer than the previous quarter. Wages and benefits cost 6.5 billion yuan.  It spent 15 billion yuan on R&D, up from 12.8 billion in Q2 last year.