Tencent, the Chinese tech giant, posted its first quarterly revenue decline since its 2004 IPO on Wednesday, suffering the country’s economic woes and the effects of the coronavirus pandemic. Its fiscal second-quarter revenue fell 3% year-on-year to 134 billion yuan (19.3 billion euros, $19.7 billion), Tencent said in a statement. Profit decreased by 56% and amounted to 18.6 billion yuan.
In addition to the economic context and the effects of the pandemic, the Internet and video game giant, which owns China’s ubiquitous WeChat app (social network, online payment), must also deal with regulatory tightening in the context of the technology sector. .
Chinese technology under pressure
Tencent said it cut about 5,500 jobs, reducing its headcount to 110,715 at the end of June, the first decline in the company’s workforce since 2004 as well. “We proactively eliminated non-core businesses, tightened our marketing spending and reduced our operating expenses, which allowed us to consistently increase our operating profit (excluding IFRS accounting standards) despite challenging revenue conditions.“, the press release continues.
Tencent says nearly half of its revenue comes from financial technology and business services, opening the door for growth as China’s economy booms. China has frozen any new video game licenses for nine months in condemnation of their addictive nature among young people, not resuming its mandate until April. However, Tencent and its rival NetEase have not received new licenses. According to Tencent, China’s domestic video game market stands at “transitional challengesand the international market is “period of post-epidemic digestionand people are resuming their entertainment spending in other areas.
Online ad sales fell a record 18% year-over-year in the second quarter, reflecting “significant weakness in Internet services, as well as in the education and financial sectors“, the company notes. “Tencent has been tightening its belt as China’s tech industry begins to decline“Willer Chen, an analyst at Forsyth Barr Asia, is quoted as saying for Bloomberg. “Company performance is now highly dependent on advances in cost control and operational optimization“.
Tencent is one of the big names in Chinese technology under pressure from regulatory uncertainties. From the end of 2020, the authorities are particularly tough on some of the practices of the digital giants that were largely tolerated in the past, particularly in terms of personal data collection and competition. Beijing has thus increased its crackdown on powerful Internet companies, preventing them from raising money internationally or being fined for abusing their dominant position. These moves have cost the industry billions of dollars in market capitalization. Economic difficulties also worsened. Alibaba, the Chinese e-commerce giant, reported a slight decline in quarterly sales for the first time in its history in early August.
Shares in Tencent gained less than 0.1% on the Hong Kong stock exchange before the quarterly results were released. Tencent announced yesterday that it plans to sell all or most of its $24 billion stake in Chinese food delivery company Meituan. Meituan shares in Hong Kong lost more than 10% on Tuesday after the announcement, while Tencent shares then fell slightly before recovering.
Source: Le Figaro
I am David Wyatt, a professional writer and journalist for Buna Times. I specialize in the world section of news coverage, where I bring to light stories and issues that affect us globally. As a graduate of Journalism, I have always had the passion to spread knowledge through writing.