Tencent profit halves, revenue flat as crackdown and COVID-19 weigh

Chinese gaming and social media giant Tencent reported no revenue growth in the first quarter, its worst performance since it went public in 2004

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5/19/2022 12:30:00 AM

Chinese gaming and social media giant Tencent reported no revenue growth in the first quarter, its worst performance since it went public in 2004

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.

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.Register now for FREE unlimited access to Reuters.com

Reuters Graphics Reuters GraphicsIn a call with analysts, Tencent President Martin Lau said that Beijing has begun to voice support for tech companies in recent weeks as COVID outbreaks have sapped China's economic growth momentum. He cited a meeting on Tuesday where Chinese Vice Premier Liu He assured tech firms of the authorities’s support for the sector.

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Register now for FREE unlimited access to Reuters.com Register (0700.HK) 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. The operator of the WeChat messaging platform and the world's largest video game company said ad sales slumped 18% in the first quarter ended March 31, following a 13% drop in the October-December period. COVID-19 lockdowns in China have hurt advertiser sentiment, while Tencent's ad business has also taken a knock from competition from rivals, including TikTok owner ByteDance. Register now for FREE unlimited access to Reuters.com Register The Shenzhen-based company has lost more than half its market value since it peaked in February 2021 following Beijing's regulatory crackdown to rein in the influence of large internet firms, it remains though China's most valuable company. Reuters Graphics Reuters Graphics https://tmsnrt.rs/3sHCX12 ) In a call with analysts, Tencent President Martin Lau said that Beijing has begun to voice support for tech companies in recent weeks as COVID outbreaks have sapped China's economic growth momentum. He cited a meeting on Tuesday where Chinese Vice Premier Liu He assured tech firms of the authorities’s support for the sector. read more “So you can see that from the senior most level, there is a pretty clear supportive signal released," he said, adding it would take time before its will translate into a real impact on the company's business. Lau also added that while stricter regulations could become "normal practices", COVID outbreaks had emerged as a bigger challenge. James Mitchell, Tencent’s chief strategy officer, said that the prolonged COVID-19 lockdown in Shanghai, in particular, had significantly hampered multinational corporations’ advertising budgets as many tended to make their advertising decisions out of the city. A logo of Tencent is seen during the World Internet Conference (WIC) in Wuzhen, Zhejiang province, China, November 23, 2020. REUTERS/Aly Song Still, regulatory curbs have hurt many of Tencent’s revenue engines including video games. After freezing new game licences for 8 months, Beijing resumed issuing licenses in April but the latest batch of new licenses did not include games from Tencent, which makes much of its money by developing games such as 'Honour of Kings' and 'Call of Duty Mobile'. China has yet to issue more game licences this month. Mitchell said he expected big firms like Tencent to receive game licenses in the future but that China will approve fewer games overall going forward. To account for that, Tencent has pivoted to focus on fewer but higher-quality games, and plans to introduce more big-budget games in 2023, he added. Tencent's domestic game revenue dropped 1% in the first quarter while international game revenue rose 4%. With Chinese regulators imposing draconian measures to keep minors from playing video games and curbing aggressive monetization features, Tencent has turned to overseas markets for growth. Revenue growth in its fintech and business services segment slowed to 10% in the first quarter, from 47% a year earlier. Total revenue was 135.5 billion yuan ($20 billion) in the quarter, roughly the same as a year earlier, and below analysts' average 141 billion yuan estimate, according to Refinitiv. Shawn Yang, Shenzhen-based managing director of Blue Lotus Capital Advisors, said the 51% plunge in quarterly profit was particularly concerning. "I estimated a 17% or 18% decrease because I had learned that they had executed many cost-cutting measures," Yang said. "I couldn't guess that its profit has gotten this bad." ($1=6.7488 Chinese yuan renminbi) (This story refiles to fix typo in paragraph 8) Register now for FREE unlimited access to Reuters.com Register Reporting by Josh Ye; Editing by Kim Coghill, Bernadette Baum and Tomasz Janowski Our Standards: The Thomson Reuters Trust Principles. Technology Roundup Sign up to our tech newsletter to get the latest news and trends in the global technology industry. Sign up Subscribe to our newsletter to get all the news you need to start your day. Sign up