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Tencent Revenue Fails To Grow For First Time Since 2004 IPO

Tencent Holdings’ quarterly revenues have failed to grow for the first time since the company’s 2004 initial public offering.

Tencent Revenue Fails To Grow For First Time Since 2004 IPO

China’s most valuable company by market capitalisation, Tencent saw its revenue slow dramatically about a year ago as Beijing regulators tightened their grip on gaming and other sectors that had advertised heavily on company platforms, such as online tutoring. Weakening Chinese economic momentum has been another headwind.

Analysts surveyed by Refinitiv had expected Tencent’s January-March revenues to grow about 4% from a year earlier. But they were flat instead, at 135.47 billion yuan ($20.06 billion).

Tencent reports profits under two different accounting standards. Profit attributable to equity holders decreased 51% to 23.4 billion yuan for the first quarter on a year-on-year basis, while non-IFRS profits dropped for a third consecutive quarter, sliding 23% from a year before to 25.54 billion yuan.

The impact from China’s recent COVID outbreaks and lockdowns was felt most strongly in its financial technology services segment, which includes WeChat Pay. Segment revenues grew about 10% to 42.8 billion yuan from a year before, but declined around 10% from the October-December quarter as Tencent said usage for transport, shopping and dining tumbled.

Domestic gaming revenue decreased 1% to 33 billion yuan from a year before amid Tencent’s failure to get Beijing’s approval to launch any new paid games, as well as tightened rules on youth play.

Last month, China granted new video game licences to 45 titles, the first approved since July. But neither Tencent nor top rival NetEase had any games included in the new licences.

International gaming revenues climbed 4% to 10.6 billion yuan. Tencent has accelerated a push into foreign markets, but said on Wednesday that “post-COVID normalisation in user spending” overseas held back growth. Its globally popular “PUBG Mobile” game posted a revenue decline.

“We believe that, in general, there will be fewer game approvals in the future than there were prior to 2018, and we’ve held that belief for a couple of years. It’s also why over the last two years we’ve reconfigured our game business from top to bottom, focusing on releasing and developing fewer, higher-budget, and hopefully better games,” said James Mitchell, chief strategy officer.

Amid concerns over Beijing’s regulatory uncertainty, the Politburo meeting in late April pledged to promote the healthy development of the platform economy, as well as to complete ratification and introduce specific measures to support the sector. While the country’s top political advisory body met some top executives from tech companies Tuesday to voice their support for the platform economy as well as the private sector.

However, Martin Lau, Tencent’s president, said in a conference call with analysts that it will take time for companies to really benefit from these directions.

“The sequence is pretty much clear in this order: It will take some time for the corrective measures to be turned into normalised regulation, and then the specific supportive measures would be introduced. So we will be working closely with the regulators,” said Lau.

Revenues from online advertising fell 18% due to lower demand from sectors including education, e-commerce and internet services. The drop-off was especially steep in ad receipts for the group’s media platform, such as its news and video services. Social networking revenues rose 1% to 29.1 billion yuan thanks to live-streaming related receipts.

Tencent had 68,226 employees as of the end of 2021, compared with 51,350 a year earlier. Its turnover rate edged up to 12.4% in 2021, according to the company’s sustainable social value report released on Monday.

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