Chinese tech giant Tencent on Wednesday posted its first drop in quarterly earnings since its IPO as the company grapples with China’s economic slowdown, pandemic disruptions and ongoing scrutiny from regulators.
Revenue in the second quarter fell 3 percent year on year to 134 billion yuan ($19.8 billion), while profit fell 56 percent to 18.6 billion yuan, according to an earnings statement.
Tencent also cut about 5,500 jobs to 110,715 employees by the end of June, the first quarterly decline in the workforce since 2014.
“We have actively exited non-core businesses, streamlined our marketing spend and trimmed operating expenses, allowing us to sequentially grow our non-IFRS results despite challenging revenue conditions,” the company said in the statement.
Around half of Tencent’s revenue comes from fintech and business services, as well as online advertising, which would position the company for growth as China’s economy expands, the company added.
China has spent months cracking down on the video game industry to tackle childhood addiction, cutting the profits of giants like Tencent and its rival NetEase.
Beijing started approving new video games again in April after a hiatus, but there were no Tencent games on the list, meaning it has to rely on legacy titles like Honor of Kings for revenue.
Tencent said China’s domestic gaming market faces “transition challenges” while the international market is in a “post-pandemic digestion period” as people resume spending on other entertainment.
Online advertising revenue fell a record 18 percent year-on-year in the second quarter, “reflecting notable weakness in internet services, education and finance,” the company added.
“Tencent has tightened its belt as the Chinese tech industry takes a downturn,” Forsyth Barr Asia analyst Willer Chen told Bloomberg News.
“The company’s performance now depends largely on its advances in cost control and operational optimization.”
– Tech sector staggers –
Tencent is among the biggest names in China’s tech industry, which is still reeling from Beijing’s regulatory crackdown that began in late 2020 to crack down on anti-competitive practices and end a decade of unabated growth.
Bloomberg News estimates that regulatory action has wiped out the combined market value of the country’s tech giants by more than $1 trillion in 2021 — though Tencent has retained the crown as China’s most valuable company.
The recent economic slump has further hurt profits at the sector’s biggest companies, with Alibaba Group reporting flat quarterly sales growth for the first time earlier this month.
Tencent shares rose less than 0.1 percent in Hong Kong ahead of Wednesday’s earnings announcement.
The announcement came a day after it was revealed that Tencent plans to sell all or most of its $24 billion stake in Chinese food supplier Meituan.
Hong Kong-listed Meituan fell more than 10 percent Tuesday after the news, while Tencent slipped slightly before recovering.
Tencent went public in Hong Kong in 2004 and enjoyed double-digit growth during much of China’s decade-long internet boom, dominating the market with instant messaging app WeChat and its slate of games.
Earnings data on the company’s performance prior to its listing on the stock exchange is not publicly available.
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