Friday, December 1, 2023

Tencent returns to growth as China emerges from Covid lockdowns

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Chinese tech group Tencent reversed two successive quarters of revenue declines and said it was “well positioned” to benefit from the ending of the country’s zero-Covid policy.

The tech group posted quarterly revenue of Rmb145bn ($21bn) in the three months to December, a 0.5 per cent increase from the same period a year earlier and in line with analysts’ forecasts. Tencent’s net profit rose 19 per cent to Rmb29.7bn, slightly above analysts’ estimates.

Chief executive Pony Ma struck an optimistic tone on Wednesday, saying the company was positioned to “benefit from” a “rebound in China[’s] economic growth which our users’ activity suggests is now under way”.

The company’s sales were subdued to the end of 2022 as China emerged from zero-Covid restrictions, but its fintech arm has since experienced “double-digit growth” in the first quarter of this year as consumers headed back to the shops as China reopened.

Ma’s upbeat tone comes after Beijing communicated to investors that it was easing its regulatory crackdown on its internet giants in a bid to promote growth.

Tencent, China’s most valuable company by market capitalisation, has been downsizing its internet empire after regulators pressured it to reduce the size of its footprint in a broader anti-monopoly crackdown. During its past financial results in November, Tencent announced it would divest most of its $22bn stake in delivery service Meituan to produce a dividend for shareholders. At the end of 2022, the value of Tencent’s shareholdings in its portfolio listed companies was $84bn.

“In 2022, we did a good job reducing costs and increasing efficiencies. In 2023, we will continue in this direction. It is necessary to reduce fat and increase muscle,” Ma said.

Tencent has been ramping up investment in Channels, the short video function embedded in its ubiquitous super app WeChat, after falling behind the surging popularity of ByteDance’s Douyin platform, the sister app of TikTok. That investment has seen time spent on WeChat video accounts triple in 2022 compared with the previous year, the company said on Wednesday.

While Tencent’s domestic gaming revenue fell 6 per cent to Rmb27.9bn, its acquisitions of overseas gaming studios helped revenue from international gaming grow 5 per cent to Rmb13.9bn, driven by the success of the popular Valorant and League of Legends franchises.

“Games growth was solid, and better than expected fourth-quarter billings growth should bode well for revenues at the start of 2023,” said Robin Zhu, China internet analyst at Bernstein. He added that there was a “positive trajectory” in Tencent’s overseas gaming, despite foreign currency headwinds in the fourth quarter, which pushed down revenue from the sector.

Tencent bought back Rmb12bn of shares in its fourth quarter.

It also announced that its president and top dealmaker Martin Lau would rotate off the board at its annual meeting this year, but he would remain as president and chair of the investment committee.

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