Chinas Tencent second-quarter profit falls 2 percent, lags estimates

A weaker yuan makes Chinese exports cheaper cushioning the impact of the tariffs imposed by US President Donald Trump

"China's whole online gaming industry is having some issues - not only because of regulation but also because Chinese gamers are becoming more mature and selective", Shawn Yang, executive director for Blue Lotus Capital Advisors, told Bloomberg TV.

Unsurprisingly, mobile games continue to be the driving force of revenue for the entertainment company, with 17.6 billion yuan (~$2.53 billion) generated over the quarter, totaling about 25 percent of total revenues. "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".

The smartphone games business, which includes smash hits PUBG and Fortnite posted 19 percent year-on-year growth to hit sales of $2.5 billion, but that was done 19 percent on that previous blockbuster quarter.

The owner of messaging platform WeChat, which has more than 1 billion users, has struggled to secure approval from Chinese regulators to monetize some of its most popular online games.

Its gaming title, Monster Hunter: World, was pulled off earlier this month for failing to receive approval from the General Administration of Press and Publication Administration and it's still waiting for the green light from the gaming watchdog to relaunch the game.

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"The results were really bad", said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch.

Tencent also said players who purchased "Monster Hunter: World" were entitled to a full refund until August 20.

While several brokerages cut their price target for Tencent after its earnings, analysts were broadly upbeat on the outlook. Bank of America Merrill Lynch analysts downgraded their ratings on the company's bonds and said they have higher regulatory risk than rival Alibaba Group Holding Ltd.

Chinese digital giant Tencent booked $6.22 billion in profit during the first half of 2018, but revenues from its signature games unit have been hit by delayed releases and changing user patterns.

The pace of the company's investment is also slowing. It has resulted in new game licenses being frozen until the restructuring is complete.

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One potentially promising area is payments, where monthly active users stood at 800 million as of June. Observers point to the regulatory woes as the cause, but they also believe that the effect will be temporary, and that Tencent will likely be able to adjust.

Gaming for now remains its bread and butter.

The company's revenue grew 30% to 73.7 billion yuan in the second quarter.

Holding up earnings this past quarter has been the company's inability to make money in China off Player Unknown Battleground, commonly called PUBG, a popular game that pits players against one another in a battle to the death on an island covered with weapons, vehicles and sniper nests.

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