The Chinese company, Tencent, recorded its first drop in sales since its IPO 18 years ago. Chinese tech giant Tencent posted its first quarterly decline in revenue since its initial public offering in 2004 on Wednesday, as it grapples with the country’s economic woes and the fallout from the coronavirus pandemic. Fiscal second-quarter revenue fell 3% year-on-year to 134 billion yuan (€19.3 billion, $19.7 billion), according to a statement from Tencent. Profits fell 56% to 18.6 billion yuan.
In addition to the economic context and the consequences of the epidemic, the internet and video game giant, which owns the ubiquitous WeChat (social network, online payment) app in China, must also deal with regulatory tightening in the context of taking over the tech sector. Tencent said it cut about 5,500 jobs, reducing its headcount to 110,715 at the end of June, the company’s first drop in the workforce since also 2044.
“We have actively eliminated non-core businesses, tightened our marketing expenses and reduced our operating expenses, allowing us to sequentially increase our operating profit (not accounting for IFRS) despite challenging business turnover conditions,” the statement continued. . Tencent reports that it derives nearly half of its revenue from fintech and business services, opening doors for growth when the Chinese economy booms.
China froze for nine months any new licensing of video games, denounced for their addiction among young people, and did not resume their licenses until April. However, Tencent and its rival NetEase have not obtained any new licenses. According to Tencent, China’s domestic video game market is facing “transitional challenges” and the international market is in a “post-epidemic digestion period” and people are resuming spending on entertainment in other regions.
In the second quarter, online advertising sales fell by a record 18% year-over-year, reflecting a “notable weakness in Internet services as well as the education and financial sectors,” Tencent noted. “Tencent has tightened its belt as the Chinese tech industry begins to shrink,” Wheeler Chen, an analyst at Forsyth Bar Asia, told Bloomberg. “The company’s performance now largely depends on its progress in cost control and operational improvement.”
Tencent is one of the big names in Chinese technology, under pressure from regulatory uncertainty. Since the end of 2020, authorities have been particularly stubborn against certain practices of the digital giants, which had previously been largely tolerated, particularly in relation to personal data collection and competition.
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And so Beijing doubled down on powerful internet companies, preventing them from raising money internationally or fining them for abusing a dominant position. These measures have caused the sector to lose billions of dollars in market value. Economic hardship also affected. Alibaba, the Chinese e-commerce giant, announced in early August a slight drop in quarterly sales for the first time in its history.
Before the quarterly results were announced, Tencent shares gained less than 0.1% on the Hong Kong Stock Exchange. The day before, Tencent announced its intention to sell all or most of its $24 billion stake in Chinese food delivery company Meituan. In Hong Kong, Meituan’s activity lost more than 10% on Tuesday after this announcement, then Tencent’s activity declined slightly before recovering.
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