Chinese tech giant Tencent’s revenue falls for the first time since its IPO

Chinese tech giant Tencent posted its first quarterly revenue drop since its IPO on Wednesday as the company grapples with China’s economic slowdown, pandemic disruptions and continued scrutiny from regulators.

Second-quarter revenue fell 3% to 134 billion yuan ($19.8 billion) from a year earlier, while profits plunged 56% to 18.6 billion yuan, according to a Press release.

Tencent also cut about 5,500 jobs to 110,715 employees at the end of June, the first quarterly decline in the workforce since 2014.

“We actively exited non-core businesses, tightened our marketing spend and reduced our operating expenses, which allowed us to sequentially grow our non-IFRS earnings despite challenging revenue conditions,” the company said. company in the press release.

About half of Tencent’s revenue comes from fintech and business services as well as online advertising, which would position the company for growth when China’s economy expands, the company added.

China has spent months cracking down on the video game industry to curb addiction among children, slashing the profits of giants like Tencent and rival NetEase. Beijing resumed approving new video games in April after a hiatus, but no Tencent games made the list, meaning it has to rely on older titles like ‘Honor of Kings’ to generate revenue .

Tencent said China’s gambling market was facing “transitional challenges”, while the international market was in a “post-pandemic digestion period” as people started spending on other means of entertainment again. .

Online advertising revenue fell a record 18% in the second quarter year-on-year, reflecting “notable weakness in the internet services, education and financial sectors”, the company added. society.

“Tencent has tightened its belt as China’s tech industry embraces a slowdown,” analyst Willer Chen of Forsyth Barr Asia told Bloomberg News.

“The company’s performance today largely depends on its progress in terms of cost control and optimization of operations.”

Technology sector in shock

Tencent is one of the biggest names in China’s tech industry still reeling from Beijing’s regulatory crackdown, which began in late 2020 to target anti-competitive practices and end a decade of coasting growth.

Regulatory measures erased more than $1 trillion from the nation’s tech giants’ combined market value in 2021, Bloomberg News estimates – though Tencent retained the crown as China’s most valuable company .

The latest economic crisis has further hurt the results of the biggest companies in the sector, with the Alibaba Group reporting stable quarterly revenue growth for the first time this month.

Shares of Tencent rose less than 0.1% in Hong Kong ahead of the earnings announcement on Wednesday, a day after news broke that Tencent was considering selling all or most of its $24 billion stake. dollars in Chinese food delivery giant Meituan.

Shares of Hong Kong-listed Meituan fell more than 10% on Tuesday after the news, while Tencent fell slightly before recovering.

Tencent went public in Hong Kong in 2004 and has enjoyed double-digit growth through much of China’s decades-long internet boom, dominating the market with instant messaging app WeChat and its list of games.

Earnings data for the company before its IPO is not publicly available.