Tencent Shares Hover Around 3-1/2 Year Low as Q2 Results Loom

© Reuters.

By Ambar Warrick

AiVIF.com-- Hong Kong shares of Tencent (HK:0700) traded near three-year lows on Tuesday, ahead of a widely-expected drop in the Chinese internet giant’s second-quarter results.

Tencent - the world's most valuable videogame maker - traded down 0.3% at HK$299.40, keeping just above levels last seen in early 2019. The firm is set to report its second quarter results during market hours on Wednesday.

Investors will be watching to see whether the firm misses revenue estimates for a fifth consecutive quarter. A tech crackdown by China, starting in 2021, has severely impacted Tencent’s operations in the country.

Analysts expect revenue of 134.55 billion yuan, down from 138.26 billion yuan a year ago. Tencent’s earnings per share are also expected to have declined to 2.9 yuan from 4.39 yuan a year ago.

This follows a roughly 50% drop in Tencent's first-quarter profit, as COVID lockdowns in China also dented its advertising business.

The decline in earnings was sparked largely by a broad regulatory crackdown by Beijing against the tech sector, which has impacted heavyweights such as Tencent, Alibaba Group (NYSE:BABA), Baidu Inc (NASDAQ:BIDU), and JD.com Inc ADR (NASDAQ:JD).

The government has accused Tencent and its peers of invading user privacy, manipulating the market, and engaging in anti-competitive behavior. Both Tencent and Alibaba have been repeatedly slapped with steep fines since 2021.

Fears of increased regulatory scrutiny have also seen Tencent roll back some services. The internet giant recently suspended sales on its non-fungible token platform Huanhe.

But market pressure may be easing on China’s internet giants. Alibaba last week reported better-than-feared revenue and earnings.

Tencent’s U.S.-listed music arm, Tencent Music Entertainment Group (NYSE:TME), also beat quarterly estimates on Monday following a jump in users. Shares of the firm rose nearly 6% in aftermarket trade.