Tencent Posts Slowest-Ever Sale Rise in Q4, Regulation Impact Set to Ease

Revenue at Chinese social media and gaming giant Tencent grew just 8% in the fourth quarter, the slowest pace since it went public in 2004, reflecting regulatory scrutiny that has hurt both its gaming business and advertising sales.

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

This has also led to a slowdown in advertising as businesses have cut spending.

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

The restrictions on minors were effective as the total time spent by minors on its games sank 88 percent, Tencent said, adding that the impact of this factor on revenue growth would ease later in the year.

“As we move into the latter half of 2022 it should cease to impact the revenue growth rate,” Chief Strategy Officer James Mitchell told reporters on a call on Wednesday, referring to the minor-protection measures.

Tencent President Martin Lau said regulators were still supportive of the gaming industry, adding that the company had a ready pipeline of games for when approvals resumed.

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

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

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

Beijing has also issued rules to regulate financial holding companies, directing Tencent peer Alibaba’s affiliate Ant to turn itself into a financial holding company with capital restrictions.

Lau, who had previously said that creating a financial holding company would not impact its business, repeated his stance on Wednesday and said Tencent was proactively discussing whether it qualified for such a licence.

Staff numbers

“Going forward we feel that we’ll continue to see new regulations coming in but the incremental ones will be less than the bulk of regulations that happened in the first couple of years,” Lau said.

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

Reuters has reported that Tencent CEO Pony Ma told employees at the end of 2021 that the company should prepare itself for a “winter”, and that it and Alibaba were preparing to cut tens of thousands of jobs combined in one of their biggest rounds of layoffs.

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

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

Tencent said on Wednesday its adjusted profit for the December quarter fell by a fourth to CNY 24.9 billion (roughly Rs. 29,861 crore) as costs rose.

© Thomson Reuters 2022