Saturday, January 22

Tencent’s sales grow at the slowest level since 2004

Tencent’s revenue grew 13% slower than expected after China’s massive tech crackdown hit companies like games and advertising.

Sales rose to 142.4 billion yuan ($ 22.3 billion) for the three months ending in September, below the average forecast of 145.4 billion yuan, according to a document released Thursday. Growth slowed for the sixth consecutive quarter and reached the slowest pace since Tencent went public in 2004. Net income was better than expected by 39.5 billion yuan after it posted a profit on the sale of some investments, although Non-IFRS earnings fell 2%. , the first decline since Bloomberg began tracking the data in 2010.

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The third-quarter results from Tencent, the first among China’s largest tech giants, offer a snapshot of the far-reaching impact of the Beijing campaign at its peak. The company’s enormous influence on the world’s second-largest economy has left it vulnerable, as government scrutiny quickly engulfed everything from finance to education to online entertainment. Among the deadliest blows were the July tutoring purge that decimated a key source of advertising revenue and a limit on children’s playtime announced the following month.

“The pressure on Tencent’s ad growth may persist for the next few quarters,” said Matthew Kanterman, senior analyst at Bloomberg Intelligence. “While online game sales held up well despite regulatory headwinds and new game releases add promise to Q4 and 2022 trends, dimming advertising trends could lead to further downgrading of expectations. growth “.

Online advertising rose 5% slower than expected, in part due to weakness in the education, insurance and gaming sectors, Tencent said in its presentation. He added that advertising prices could remain low for several quarters “due to macroeconomic challenges and regulations affecting certain key advertising sectors.”

China’s largest company said Wednesday that minors accounted for 0.7% of time spent playing its games in China and 1.1% of gross domestic revenue in September, a significant decrease from the previous year. Domestic gaming revenue increased 5%, trailing the 20% increase in international gaming revenue.

While stricter limits on the amount of time kids can play video games have had a negligible impact on gaming revenue, regulators have also held off on approving new releases since July, as they scrutinize apps more carefully. . The slowdown has revived painful memories of a 10-month freeze in game monetization licenses in 2018, which helped wipe $ 200 billion from Tencent’s market value at the time.

The restriction of games has likely affected Tencent’s ad revenue as well, as mandatory ID checks designed to screen minors prevented adults from playing some games, Nomura analysts led by Jialong Shi said. “This extra step has turned out to be detrimental to the Candy Crush type of casual games,” they wrote in a note before the results. “These casual games not only spend advertising on themselves, but also contribute ad inventory to mobile ad networks run by large platforms such as ByteDance and Tencent.”

For now, Tencent’s enduring successes like Honor of Kings continue to be its biggest revenue streams in gaming as it looks for new growth drivers. Wholly-owned Riot Games Inc. may offer the most potential: Its long-awaited mobile game League of Legends finally debuted in China last month, and the franchise’s esports tournament and new anime series attracted hundreds of millions of views. for Tencent and its affiliates. over the past weekend.

The fintech and business services segment continued to post the strongest growth, increasing 30% in the quarter due to increased commercial payment volumes, increased digitization, and the consolidation of the Bitauto car comparison website.

After starting a year ago, China’s tech crackdown has left several problems unsolved, including data security, restructuring of fintech operations, and opening up isolated internet platforms. Tencent and its arch nemesis Alibaba Group Holding have taken the first steps to open up their platforms to each other’s services, while the country’s tech industry supervisor is said to be considering forcing WeChat to make its social articles viewable on engines. search engines like Baidu Inc., Bloomberg News reported last month.

Tencent made it clear that it will comply with the new Beijing regulations.

“We are proactively embracing the new regulatory environment that we believe should contribute to a more sustainable development path for the industry,” the company said near the top of its earnings release. “In the domestic gaming market, our industry-leading efforts to fully comply with new regulations significantly reduced children’s time and spending on games, fostering a healthier gaming environment.”

The company is also making a deeper foray into business software and advanced technologies. Last week, the WeChat owner pledged $ 3 billion worth of resources over the next three years to his cloud trading partners and introduced his first self-made chips for use cases like search and video transcoding.

© 2021 Bloomberg

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