Tencent stock slumps while regulators sit on approvals

There has been a sell off of Chinese tech and entertainment stocks, led by stock market darling Tencent, the company behind the ubiquitous-in-China WeChat mobile app.

Tencent shares are down around 27 percent since January, but trading yesterday wiped out around $15 billion from the company’s market value. Then today, Tencent announced its first decline in quarterly profits in nearly 13 years, and another $25 billion went poof! Why?

• “Weak gaming revenue” is the reason cited by Tencent for the fall in profits. Like all gaming companies in China, Tencent has been waiting government approvals for games since March, after a regulatory reform.
• “The world’s largest gaming market has been rattled for months as a game approval freeze drags on. Insane to think that because of leadership shift on top, the world’s biggest gaming companies are in complete disarray.” That was a tweet from Lulu Yilun Chen, China tech reporter for Bloomberg.
• “We don’t have visibility on when exactly the official approval will start yet,” said Tencent President Martin Lau on a conference call with investors, according to Bloomberg (paywall).
• New York Times China tech correspondent Paul Mozur unpicked Lau’s comments in a tweet: “Tencent president Martin Lau just explained how Beijing bureaucratic restructuring is holding up the entire gaming approval process and doing real damage to a company that’€™s supposed to be an emblem of Chinese innovation.”

Knock on effects and related phenomena:

• Shares of U.S. tech giants Facebook, Apple, and Alphabet all dropped, as did Chinese tech stocks like Alibaba and JD.com. Macy’s is down. The Dow Jones, S&P, and Nasdaq are down.
• Tencent spinoff China Literature, mobile phone maker Xiaomi and China Tower — an infrastructure company launched by China’s three large mobile networks — all “saw their share prices drop below where the stocks had priced in recent highly-anticipated public listings, in the latest sign of weakening investor demand for some China-focused companies,” according to the Financial Times (porous paywall).  

Further reading: China freezes game approvals amid agency shakeup and Nasty earnings surprises dog China’s tech darlings on Bloomberg (both with porous paywalls).