Tencent reveals first revenue drop, job cuts as economy collapses

Online entertainment giant Tencent saw its first-ever revenue decline after its workforce shrank nearly 5 percent, underscoring the extent to which China’s deteriorating economy is hurting its biggest companies.

The country’s most valuable company posted its first quarterly job cut since 2014, when layoffs that have swept the global tech sector finally hit the WeChat operator.

Revenue fell 3% more-than-expected to 134 billion yuan, while net income also missed estimates, falling 56% to 18.6 billion yuan in the June quarter.

Tencent is grappling with a deepening downturn in the world’s second-biggest economy, the result of a real estate slump and ad hoc coronavirus lockdowns from Shanghai to Shenzhen.

The uncertainty is wreaking havoc on businesses from advertising to cloud computing to gaming.

Online retail giant Alibaba this month reported its first quarterly sales decline on record, although results were better than feared.

Even before the macroeconomic turmoil, China’s gigantic internet industry had settled into a new era of leisurely growth after a decade of unabated expansion.

Companies like Tencent have focused on profitability in recent years after a sweeping government crackdown wiped out more than $1 trillion of their combined market value in 2021.

There were some positive signs.

Online advertising revenue fell a record 18 percent in the quarter, but that was better than analysts feared.

And adjusted net income of 28.1 billion yuan was about 15 percent higher than expectations.

Shares in Prosus NV, one of Tencent’s biggest supporters, slid more than 1 percent in Europe.

Beijing continues to give Tencent a headache.

Although regulators resumed approving games in April after a month-long hiatus to curb addiction, China’s top developer has yet to win a single title this year.

For now, it’s banking on aging cash cows like Honor of Kings to fuel its most lucrative business while battling newer hits like Genshin Impact and Diablo Immortal.

The company, which once relied on a network of investments that spanned hundreds of firms to create opportunities and new markets, has signaled since last year that it is preparing to sell stakes in a major Chinese e-commerce internet investor. Giant JD.com Inc. will start at Meituan .

Faced with the new realities, Tencent executives have said international gaming, cloud software and WeChat video will be their top strategic priorities.

The TikTok-style feed in Tencent’s super app is the company’s latest hope to counter ByteDance, which is increasingly luring users and marketing dollars away.

Alibaba, Tencent and other mainland China tech companies could face fewer penalties and lower fines in 2023 as they become more vigilant about complying with the rules and work with regulators to avoid new violations, say Bloomberg analysts Catherine Lim and Tiffany Tam.

The fintech and business services segment — which includes cloud computing — is now Tencent’s fastest growth driver.

However, cloud revenue suffered a slight dip after the company canceled loss-making contracts and ventured into non-infrastructure services, executives said in May.

Just like Mark Zuckerberg’s meta, Tencent lays claim to a possible future of the virtual realm of the metaverse.

The Chinese company has revamped its aging social app QQ with customizable 3D avatars and Unreal Engine graphics, and is hiring developers to create open-world titles.

But such efforts, coupled with a steady pace of investment in overseas game studios, could squeeze margins before they bear fruit.

https://www.independent.ie/business/world/tencent-unveils-first-sales-fall-job-cuts-as-economy-crumbles-41917712.html Tencent reveals first revenue drop, job cuts as economy collapses

Fry Electronics Team

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