Chinese tech giant Tencent on Wednesday posted its first drop in quarterly revenue since going public, as the company grapples with China's economic downturn, pandemic disruptions and ongoing scrutiny from regulators. Revenue in the second quarter fell three percent to CNY 134 billion compared to the year before, while profits plunged by 56 percent to CNY 18.6 billion, an earnings statement said.
Tencent also cut around 5,500 jobs down to 110,715 employees
by the end of June, the first quarterly decline in workforce since 2014.
"We actively exited non-core businesses, tightened our
marketing spending, and trimmed operating expenses, enabling us to sequentially
increase our non-IFRS earnings, despite difficult revenue conditions," the
company said in the statement.
Around half of Tencent's revenues came 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 fight addiction among children, cutting into profits of giants like
Tencent and its rival NetEase.
Beijing started approving new video games again in April
after a hiatus, but no Tencent games were on the list, meaning it must rely on
older titles like Honor of Kings for revenue.
Tencent said China's domestic gaming market was facing
"transitional challenges", while the international market was in a
"post-pandemic digestion period" as people resumed spending on other
entertainment avenues.
Online advertising revenue fell a record 18 percent in the
second quarter year-on-year, which reflected "notable weakness in the
Internet services, education and finance sectors", the firm added.
"Tencent has tightened its belt as the Chinese tech
industry embraces a downturn," Analyst Willer Chen at Forsyth Barr Asia
told Bloomberg News.
"The company's performance now largely depends on its
progress on cost control and operation optimisation."
Tech sector reeling
Tencent is among the biggest names in China's tech industry
that is still reeling from Beijing's regulatory crackdown, which began in late
2020 to target anti-competitive practices and put an end to a decade of
freewheeling growth.
The regulatory actions have wiped more than $1 trillion off
the combined market value of the country's tech giants in 2021, according to
Bloomberg News estimates -- though Tencent has retained the crown as China's
most valuable company.
The latest economic slump has further damaged bottom lines
for the sector's biggest firms, with Alibaba Group earlier this month reporting
flat quarterly revenue growth for the first time.
Shares in Tencent rose less than 0.1 percent in Hong Kong
before the Wednesday results announcement.
The announcement came a day after news broke that Tencent
plans to sell all or much of its $24 billion stake in Chinese food delivery
giant Meituan.
The Hong Kong-listed shares of Meituan fell more than 10
percent on Tuesday following the news, while Tencent dipped slightly before
recovering.
Tencent went public in Hong Kong in 2004 and enjoyed
double-digit growth for much of China's decades-long internet boom, dominating
the market with instant messaging app WeChat and its roster of games.
Earnings data on the company's performance before its
listing on the stock exchange is not publicly available.
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