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Despite outperforming other Chinese tech stocks, the Tencent share price is still down substantially, the writer says. In this file photo people walk past Tencent's headquarters in Shenzhen, Guangdong province, China. Picture: REUTERS/DAVID KIRTON
Despite outperforming other Chinese tech stocks, the Tencent share price is still down substantially, the writer says. In this file photo people walk past Tencent's headquarters in Shenzhen, Guangdong province, China. Picture: REUTERS/DAVID KIRTON

Hong Kong — China’s Tencent posted a quarterly profit that had halved from a year ago and recorded no revenue growth, its worst performance since it went public, warning that advertisers in consumer, e-commerce and travel businesses had slashed spending.

Covid-19 lockdowns in China have hurt advertiser sentiment, while Tencent's ad business has also taken a knock from competition from rivals, including TikTok owner ByteDance.

Tencent, operator of the WeChat messaging platform and the world's largest video game company, said ad sales slumped 18% in the first quarter ended March 31, following a 13% drop in the October-December period.

The company has lost more than half its market value since its peak in February 2021 after Beijing launched a regulatory crackdown to rein in the influence of large internet firms. It still remains the country's most valuable company.

Beijing, which froze new game licences for eight months, resumed issuing licences in April but the latest batch of new licences did not include games from Tencent, which makes much of its money by developing games such as “Honour of Kings” and “Call of Duty Mobile”. China has yet to issue a new batch of game licences in May.

Charlie Chai, vice-head of research at 86Research, said Tencent’s sensitivity to the macroeconomy was rising, particularly for its ad and payments businesses.

The Shenzhen-based company said on Wednesday that user spending on games was normalising after a surge during the pandemic, while a Covid-19 resurgence in China has also dampened payment activities.

“I think investors will closely watch Tencent, along with Alibaba, as bellwether stocks for the New Economy,” Chai said, "[Future direction] all depends on how active and effective the government stimulus will be.”

Following its unprecedented regulatory crackdown, which began in late 2020 and slammed Chinese tech companies, Beijing soothed tech executives on Tuesday, saying the government supported the development of the sector and public listings — a sign that restrictions on the sector were easing.

Tencent’s domestic game revenue dropped 1% in the first quarter while its international game revenue saw a 4% rise. With Chinese regulators imposing draconian measures to limit minors from playing video games and curbing aggressive monetisation features, Tencent has turned to overseas markets for growth.

Revenue growth in its fintech and business services segment slowed to 10% in the first quarter, from 47% a year earlier.

Total revenue was 135.5-billion yuan ($20.08bn) in the quarter ended March, versus 135.3-billion yuan in the same quarter of 2021, and below an average estimate of 141-billion yuan by 16 analysts, according to Refinitiv.

Shawn Yang, Shenzhen-based MD of Blue Lotus Capital Advisors, said the 51% plunge in quarterly profit was particularly concerning.

“I estimated a 17% or 18% decrease because I had learnt that they had executed many cost-cutting measures,” Yang said. “I couldn't guess that its profit has got this bad.”

Reuters

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