Last Wednesday, Tencent Holdings Limited (OTC:TCEHY) delivered a second quarter report that reflected the turbulent dynamics of the Chinese economy that hasn’t bounced back from the COVID-19 turmoil as quickly as anticipated. Tencent’s core gaming business fell short of as the Chinese technology giant continues its recovery from a rough 2022, but it did deliver three straight quarters of revenue growth. Like its tech peers, Alibaba Group Holdings Limited (NYSE:BABA) and Baidu Inc (NASDAQ:BIDU), Tencent is betting heavily on AI to boost its business, but this time, its earnings came below expectations.

Second Quarter Highlights

For the quarter that ended on June 30th, revenue grew 11% YoY to 149.20 billion yuan, which amounts to approximately $20.45 billion, below Refinitiv’s average estimate of 151.73 billion yuan. This is a slight change compared to the first quarter that reported a 10.7% rise, but then again during last year’s comparable quarter, Tencent recorded its first-ever sales decline, that amounted to 1%, as the tech sector was hit with Beijing’s regulatory crackdown.

Although domestic gaming revenue was pretty much flat at 31.8 billion yuan, which the company attributed to the release of “less-commercially impactful content”, YoY growth is expected to return in the ongoing quarter. On the other hand, international gaming revenue rose 19% to 12.7 billion yuan, or 12% excluding the impact of currency movements.

This slowdown in gaming was offset by strong performance of online advertising whose revenue rose 34% to 25 billion yuan, topping Refinitiv consensus estimate of 22.85 billion yuan.

Fintech and business services rose 15% to 48.6 billion yuan, with the expansion being owed to both offline and online payment activities.

As a result, net profit rose 41% YoY to 26.17 billion yuan, under 33.41 billion yuan that analysts expected, according to Refinitiv. 

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