Tencent Holdings, the parent of the world’s largest gaming company and China’s social media champion, reported its largest quarterly drop in profits in a decade on Thursday, as the conglomerate continues its long slog out of a brutal period.
Profits were down 32% in the fourth quarter of last year, missing analyst estimates by a wide margin.
The company’s Hong Kong-listed shares fell 2% on the news in Thursday trading, bringing its gains for this year down to just over 15%. That compares to New York-listed competitor Alibaba’s 32% increase so far in 2019.
While the worst may be over for the company’s cash cow gaming business, prospects for which have been battered by a government campaign against game addiction, a long-term strategy to branch out to new areas has proved costly.
The company warned in a statement that “scheduled game releases will initially be slower than in some prior years,” but China has now lifted a freeze on new game approvals. The harsh restrictions sent shares of the company plunging last year.
The increased government scrutiny on gaming has heightened the urgency for Tencent to transform its business model from a focus on social media, mobile payment and gaming giant to cloud computing and AI.
The organizational overhaul was announced in September, when the company outlined an ambitious plan that would see it move into more direct competition with fellow Chinese tech giant, Alibaba.
The company has said that the plan will require billions of dollars worth of investment.