Tencent posts slowest Q4 sales growth on record, regulatory impact expected to ease

Chinese social media and gaming giant Tencent’s revenue rose just 8% in the fourth quarter, the slowest pace since its 2004 IPO, reflecting regulatory scrutiny that has hurt both its business games and advertising sales.

China has frozen gaming approvals since August last year and cut playing time for under-18s, as part of Beijing’s move to tighten control over its society and industries, including technology, after years of unbridled growth.

It also led to a slowdown in advertising as companies cut spending.

Tencent, which derives much of its revenue from gaming and develops games such as Honor of Kings and Call of Duty Mobile, said domestic game sales increased 1% in the quarter ended Dec. 31.

The restrictions on miners have been effective as the total time spent by miners on its games has fallen by 88%, Tencent said, adding that the impact of this factor on revenue growth would subside later in the year. year.

“As we enter the second half of 2022, this should stop impacting the rate of revenue growth,” chief strategy officer James Mitchell told reporters on a call on Wednesday, making reference to measures for the protection of minors.

Tencent Chairman Martin Lau said regulators are still supportive of the gaming industry, adding that the company has a gaming pipeline ready for approvals to resume.

The company, which also posted the lowest annual revenue growth at 16%, said revenue from its online advertising business fell 13% in the fourth quarter.

It expects its advertising business to resume growth in late 2022 after companies adjust to regulatory requirements.

Total revenue reached CNY 144.2 billion (about Rs 1,79,215 crore) in the quarter, below an average of CNY 147.6 billion (about Rs 1,76,992 crore) expected by 17 analysts , according to data from Refinitiv.

Beijing also issued rules to regulate financial holding companies, ordering Alibaba subsidiary Ant, a counterpart to Tencent, to transform into a financial holding company with capital restrictions.

Lau, who previously said the creation of a financial holding company would not impact his business, reiterated his position on Wednesday and said Tencent was proactively discussing its qualification for such a license.

Workforce

“Going forward, we believe we will continue to see new regulations coming in, but the additional regulations will be less than the bulk of the regulations that were passed in the first two years,” Lau said.

He said he expects workforce growth this year to be much slower than in previous years as companies pay more attention to efficiency and cost.

Reuters reported that Tencent CEO Pony Ma told employees in late 2021 that the company needed to prepare for a “winter”, and that she and Alibaba were preparing to cut tens of thousands of jobs combined in one of their biggest series of layoffs. .

Tencent’s stock has lost more than a third of its value in the past 12 months, while Alibaba’s has fallen by more than half.

Still, their stocks have rallied in recent days after Chinese Vice Premier Liu He said last week that Beijing would deploy support for the economy and keep markets stable.

Tencent said on Wednesday its adjusted profit for the December quarter fell by a quarter to 24.9 billion yuan (about 29,861 crore rupees) as costs rose.

© Thomson Reuters 2022