Tencent profits plunge as Chinese tech giant grapples with Covid lockdowns, regulation

Earnings

Signage for Tencent Holdings atop an office building in Shanghai, China, on March 22, 2022. China’s Tencent reported on Wednesday its quarterly profit halved from a year ago and revenues stagnated, blaming cuts in advertising spending by consumer, e-commerce and travel businesses for its worst performance since it went public in 2004.
Qilai Shen | Bloomberg | Getty Images

BEIJING — Chinese tech giant Tencent reported disappointing first quarter revenue across all major business segments, including a hit to mobile pay from Covid lockdowns.

Shares of Tencent, the largest Hong Kong-listed Chinese stock by market value, traded nearly 7% lower Thursday, pulling down the broader Hang Seng index.

Fintech and business services revenue, the company’s second-largest revenue driver, dropped by 10.8% quarter-on-quarter in the period ended March 31 to 42.77 billion yuan ($6.29 billion).

That’s the first sequential drop since an 11.5% decline from the fourth quarter of 2019 to the first three months of 2020, according to Wind Information data.

China’s GDP contracted in the first three months of 2020 as Covid lockdowns were imposed across more than half of mainland China in the early part of the year.

Since March, the country has attempted to control its worst resurgence of the virus in two years by using travel restrictions and targeted stay-home orders.

Loading chart…

“Commercial payment activities have been weak since mid-March 2022, due to the resurgence of COVID-19 in several cities in China,” Tencent said in an earnings release Wednesday.

That “negatively affected payment volume growth in categories such as transportation, dining services and apparel,” the company said. Management said during the analysts’ call that volume fell year-on-year for many weeks in Shanghai, and has not yet improved to normal levels, according to a transcript accessed through Refinitiv Eikon.

Tencent operates WeChat, one of China’s two dominant mobile payment apps. WeChat, known domestically as Weixin, is also the prevailing messaging and social network platform in China. Tencent is trying to build up a short-video and e-commerce business within the app.

Monthly active users of WeChat domestically and internationally rose by 3.8% from a year ago to 1.29 billion users.

On a year-on-year basis, fintech services revenue grew at a moderated pace, while business services declined, Tencent said, without disclosing specific figures.

The overall fintech and business services segment grew by 10% from a year ago. But that missed FactSet estimates by 3.41 billion yuan and marked a sharp slowdown from a 25% increase in the fourth quarter of 2021.

Tencent’s first quarter revenue across all business segments fell by 0.12% from a year ago to 135.47 billion yuan — also coming in below FactSet estimates for 140.82 billion yuan. Profit attributable to shareholders plunged by 23% from a year ago.

The business segment that includes gaming, Tencent’s biggest source of revenue, generated a disappointing 72.74 billion yuan in first quarter revenue, up mildly from the prior quarter and the year-ago period. That reflected challenges from Beijing’s restrictions on licensing new games and a slowdown in the international market.

Tencent owns popular online games such as League of Legends and Honor of Kings.

Forthcoming regulatory support

The company said they expect to receive game licenses in the future but that China would approve fewer games overall.

Looking ahead, China Renaissance analysts forecast online game revenue could drop by 0.3% year-on-year in the second quarter, and predicted a full-year increase of only 0.1%.

Beijing has cracked down not only on gaming but alleged monopolistic practices of the country’s internet giants. Authorities have struck a more moderate tone in recent months, calling instead for “healthy” development of the so-called platform economy and increased digitalization of the economy.

Chinese Vice Premier Liu He this week gave some of the latest high-level assurances to the tech sector.

Tencent President Martin Lau cited Liu’s comments in an earnings call Wednesday.

“So we can clearly see that from the senior-most level, there is a pretty clear supportive signals released,” Lau said, noting it would take time for implementation.

Advertising segment results showed another sign of the impact of Covid lockdowns on China’s economy.

The company’s revenue from online advertising fell 18% year-on-year in the first quarter to 18 billion yuan. The drop reflected regulation on online ads and “weak demand” from education, internet services and e-commerce businesses, the company said.

The lockdowns in Shanghai particularly affected many multinational corporations’ advertising budgets because those teams are mostly based in that city, said James Mitchell, Tencent’s chief strategy officer.

China’s retail sales slumped by a worse-than-expected 11.1% in April from a year ago, according to official data released this week.

Articles You May Like

True Luxury Is Built To Last
Texas Housing Market Report Halfway Through 2022
Forget the Eiffel Tower. Here’s where the French travel in France
Op-ed: Hiring freezes have started and job losses are coming. Take these 5 steps now to get your finances ready
Stocks Are Crashing But History Shows This Bear Market Could Recover Faster Than Others

Leave a Reply

Your email address will not be published.