Bureaucratic reshuffling at the top levels of China’s government made it difficult for the company to get the licensing required to make money on new video games.
SHANGHAI — Its chat app has inspired Silicon Valley. It owns some of the biggest video-game franchises in the world. And after years of growth it has become one of the largest internet companies in the world.
Yet on Wednesday, Tencent stumbled, missing earnings targets and posting a slowdown in profit growth for the first time in more than a decade.
As surprising as the slip up was the reason behind it: China’s government.
Bureaucratic reshuffling at the top levels of China’s government made it difficult for the company to get the licensing required to make money on new games, Tencent’s president, Martin Lau, explained on an earnings call.
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In a separate case, Chinese regulators pulled another game — “Monster Hunter: World” — because its content was deemed too gory.
“A lot of games have not been approved,” said Lau, adding that the government was aware “the restructuring is now affecting the industry as a whole.”
The admission was a rare acknowledgment of the outsize role China’s government can play in the fortunes, and misfortunes, of its most important private companies.
Under President Xi Jinping, Beijing has sought closer control over China’s largest internet companies, many of which were founded and grew large in the absence of Beijing oversight.
While the goal has been in part to harness the creative capabilities of the companies, many Chinese tech executives fear the yoke of the government.
Excessive bureaucracy, heavy-handed censorship and overreach into day-to-day management all come as downsides to a company having Beijing in its corner. For China’s largest companies, though, there is no choice. In a famed quote, Alibaba founder Jack Ma warned executives to strike a balance. Love the government, he advised, but don’t marry it.
An emblem of China’s growing innovative prowess, Tencent, which owns the messaging and payments app WeChat, has nonetheless been a beneficiary of Beijing’s policies. Government internet blocks have kept out would-be rivals like Facebook. Other plans that will bolster the company include a government initiative to turn WeChat into a form of digital national identification.
But China has been a double-edged sword.
Last year, Tencent was one of several private internet companies that had to inject funds into a struggling state telecom. Tencent’s hugely popular mobile game, “Honor of Kings,” also fell victim to regulations last year, over concerns that teens were spending too much time on it.
Tencent’s results on Wednesday helped push down shares of some U.S. tech companies, many of which look to China as a potential key growth market. The Nasdaq composite index fell about 1.2 percent.
“One of the prevailing assumptions, particularly around tech and tech hardware, is China equals growth,” said Kevin Landis, chief investment officer of Firsthand Capital Management. “So when one of the leading names you look for to take the pulse comes up sick, that can shake you up a little bit.”
Tencent’s second-quarter net profit fell 2 percent from the same period a year earlier to $2.7 billion.
Its revenue in the period rose 30 percent, to $11.1 billion.