Tencent’s revenue growth hit by tech crackdown and Covid curbs
Chinese tech group Tencent reported its slowest revenue growth on record after being hit by China’s crackdown on technology companies and tough Covid-19 restrictions.
The company’s revenue was largely flat in the three months to March, while its net profit plummeted 51 per cent to Rmb23bn ($3.4bn) compared with a year ago, missing analyst estimates.
Tencent’s results come a day after China’s top economic official met dozens of executives and industry experts, pledging “support” for technology companies amid a deepening economic slump. Tencent said this was encouraging but it would take time for this to equate to concrete action.
“From the senior most level there is clear supportive signals released [for “platform economy” companies like Tencent],” Martin Lau, Tencent’s president, said on an earnings call. “For this to translate to real impact on our business there is going to be a time lag.”
While the Shanghai lockdown only officially began in late March, Tencent on Wednesday said its fintech earnings started to feel the impact of the curbs from mid-March.
James Mitchell, the company’s chief strategy officer, said the effect was particularly acute because many companies’ headquarters were in Shanghai, where advertising budget decisions were made. “Covid is hurting consumption, which is unhelpful,” he added. “We’re not exempt from that.”
“Tencent and Alibaba are fair weather stocks for China’s new economy and this is a reflection of the terrible consumer and business confidence,” said Charlie Chai, an analyst with 86Research.
Tencent, China’s most valuable company, said revenue from domestic games, a significant segment for the group, dropped 1 per cent to Rmb33bn compared with a year ago, while online advertising earnings fell 18 per cent to Rmb18bn.
“Revenues from online advertising decreased . . . reflecting weak demand from advertiser categories including education, internet services and ecommerce,” Tencent said.
The company blamed “direct and indirect effects” of the government’s move last year to restrict children to about three hours of gaming a week for the hit to domestic gaming revenues. Executives said while game approvals had restarted, they expected the pace of approvals to continue to slow.
As it faces regulatory challenges closer to home, Tencent has been looking to expand abroad over the past year and has increased its investment in foreign start-ups.
But the company said it had experienced disappointing revenue from some of its international games such as PUBG Mobile, with global gaming business earnings down 20 per cent in the quarter to Rmb10.6bn.
The value of the company’s investments in listed companies also fell to Rmb606bn at March 31 from Rmb982.8bn at the end of last year. In January the group sold a $3bn stake in Singapore-based Sea. Mitchell said rising global interest rates posed risks to some of its investments in high- growth companies and it was managing this by stepping up the rate of divestments.
Bo Pei, a tech analyst at US Tiger Securities, said Tencent missed both revenue and profit estimates for the quarter, primarily owing to economic weakness and pandemic lockdowns in China.
“Given that lockdowns started in mid-March and are still in place in some cities including Shanghai, Tencent’s second-quarter outlook is even more challenging,” he added.