Tencent, the Chinese multinational technology and entertainment company, reported its first quarterly decline in year-over-year revenue because of tighter regulations surrounding gaming in China and the resurgence of COVID-19.

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The company reported a revenue of 134.03 billion Chinese yuan ($19.78 billion), a 3 percent year-on-year decline. Refinitiv consensus estimated the revenue to be at 134.6 billion yuan.

Profit attributable to equity holders of the company stood at 18.62 billion yuan, a decline of 56 percent from the corresponding period a year ago.

Due to a resurgence of COVID in China and subsequent lockdowns of major cities, including Shanghai, Tencent faced macroeconomic headwinds in the quarter. The world's second-largest economy has been disrupted by the government's zero-Covid policy.

In the second quarter, China's economy grew by just 0.4 percent, missing analysts estimates.

As a result of stricter regulations, China's domestic video games industry has also faced challenges. Gaming accounts for about a third of Tencent's revenue.

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Last year, Chinese regulators introduced a rule limiting the number of time children under 18 years old could spend playing online games to a maximum of three hours a week and only during specific times.

Another setback was China’s policy of games requiring to get the green light from regulators before being released and monetized. According to a report in CNBC, regulators froze the approval of new games between July 2021 and April this year.

Analysts at China Renaissance said in a note published last month that Tencent launched just three mobile games in the second quarter. So the company has relied on its existing popular titles to generate revenue.

The company said in its quarterly results filling that it saw decreased revenue in the second quarter from some of its hit games like PUBG Mobile and Honor of Kings.

Tencent said second-quarter domestic games revenue fell 1 percent as compared to the corresponding period last year and stood at 31.8 billion yuan, while international games revenue fell the same percentage amounting to 10.7 billion yuan.

The Chinese technology giant said the "international games market “experienced a post-pandemic digestion period", as reported by CNBC.

During the height of the pandemic and lockdowns globally, people turned to games for entertainment and companies like Tencent and rival NetEase saw a big boom. But since countries have re-opened, people are spending less time.

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