(Hong Kong) Tencent, the Chinese technology giant, posted its first quarterly revenue decline since its IPO in 2004 on Wednesday, suffering from the country’s economic difficulties and the fallout from the coronavirus pandemic.
Posted at 9:04 a.m.
Revenue for its fiscal second quarter fell 3% year on year to 134 billion yuan (19.3 billion euros, $19.7 billion), according to a statement from Tencent. Profit plunged 56% to 18.6 billion yuan.
In addition to the economic context and the consequences of the pandemic, the internet and video game giant, which owns the ubiquitous WeChat application (social network, online payment) in China, must also deal with regulatory tightening in a context takeover of the technology sector.
Tencent said it cut around 5,500 jobs, reducing its employee count to 110,715 at the end of June, also the company’s first headcount decline since 2044.
“We actively eliminated non-core businesses, tightened our marketing spend and trimmed our operating expenses, which allowed us to sequentially grow our operating profit (not accounting for IFRS accounting standards) despite the difficult revenue conditions. business,” the statement continued.
Tencent points out that it derives almost half of its revenue from financial technology and business services, which opens doors for growth when the Chinese economy is booming.
China froze for nine months any new license of video games, decried for their addictive side among young people, not resuming its authorizations until April. Tencent and its competitor NetEase did not obtain any new licenses, however.
According to Tencent, China’s domestic video game market is facing “transitional challenges” and the international market is in “a post-pandemic digestion period” and people are resuming entertainment spending in other areas.
In the second quarter, online advertising sales fell a record 18% year-on-year, reflecting “notable weakness in internet services as well as the education and financial sectors,” Tencent notes.
“Tencent has tightened its belt as China’s tech industry begins a downturn,” Forsyth Barr Asia analyst Willer Chen told Bloomberg. “The company’s performance now depends largely on its progress in cost control and operational optimization”.
Tencent is one of the big names in Chinese technology, under pressure from regulatory uncertainties.
Since the end of 2020, the authorities have been particularly intransigent against certain practices of the digital giants, which were previously largely tolerated, particularly in terms of the collection of personal data and competition.
Beijing has thus multiplied the blows against powerful internet companies, prevented from raising money internationally or fined for abuse of a dominant position.
These moves have cost the industry billions of dollars in market capitalization. Economic difficulties also weighed. Alibaba, the Chinese e-commerce giant, announced in early August a slight decline in quarterly sales for the first time in its history.
Before the announcement of quarterly results, Tencent shares had taken less than 0.1% on the Hong Kong Stock Exchange.
The day before, Tencent had announced its intention to sell all or most of its $24 billion stake in Chinese food delivery company Meituan. In Hong Kong, the action of Meituan lost more than 10% Tuesday after this announcement, that of Tencent then fell slightly before recovering.