Tencent posts fourth-quarter Q4 slowest sales growth of all time, control effect easily set

Chinese social media and gaming giant Tencent’s revenue rose just 8% in the fourth quarter, the slowest since it went public in 2004, reflecting regulatory investigations that hurt both its gaming business and advertising sales.

China has frozen game approvals since August last year and reduced gaming hours for under-18s, part of Beijing’s move to tighten control over its industry, including society and technology, after years of unbridled growth.

It has also caused a downturn in advertising as businesses have cut costs.

Tencent, which derives most of its revenue from gaming and develops games such as Honor of Kings and Call of Duty Mobile, said domestic gaming sales grew 1 percent in the quarter ended December 31.

Restrictions on minors were effective because the total time spent by minors on its games was reduced by 88 percent, Tencent said, adding that the impact of this factor on revenue growth would diminish by the end of the year.

“As we move into the second half of 2022, this should stop affecting the growth rate of revenue,” Chief Strategy Officer James Mitchell told reporters in a call on Wednesday, citing short-term security measures.

Martin Lau, president of Tencent, said regulators were still supporting the gaming industry, adding that the company had a ready pipeline of games for resumption of approvals.

The company, which posted its slowest annual revenue growth of 16 percent, said its online advertising business revenue fell 13 percent in the fourth quarter.

It expects the company to grow its advertising business again by the end of 2022, as companies adapt to regulatory requirements.

Total revenue for the quarter rose CNY 144.2 billion (approximately Rs 1,79,215 crore), lower than the CNY 147.6 billion (approximately Rs 1,76,992 crore) expected by 17 analysts, according to refinitiv data.

Beijing has also issued rules governing financial holding companies, directing Tencent Peer to turn Alibaba’s authorized ants into a financial holding company with capital restrictions.

Lau, who had previously said that creating a financial holding company would not affect his business, reiterated his position on Wednesday and said Tencent was actively discussing whether it was eligible for such a license.

Number of employees

“In the future, we feel that we will see new regulations come in, but the extensions will be less than the regulations in the first few years,” Lau said.

He said he expects staff growth this year to be much slower than the previous year as companies focus more on efficiency and cost.

Reuters reports that Tencent CEO Pony Ma told employees in late 2021 that the company should prepare itself for the “winter” and that it and Alibaba were preparing to cut thousands of jobs together in one of the biggest rounds of their layoffs. .

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

Nevertheless, Chinese Vice Premier Liu He said last week that their shares have risen in recent days in a bid to support Beijing’s economy and keep the market stable.

Tencent on Wednesday said its consolidated profit for the December quarter fell a quarter to CNY 24.9 billion (approximately Rs 29,861 crore) due to rising costs.

Thomson Reuters 2022

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