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People walk past Tencent's headquarters in Shenzhen, Guangdong province, China. File photo: REUTERS/DAVID KIRTON
People walk past Tencent's headquarters in Shenzhen, Guangdong province, China. File photo: REUTERS/DAVID KIRTON

Tencent Holdings wants you to know that it’s not purely a domestic operation. The purveyor of social media and games has started to show the world how much it makes outside mainland China. It needs to demonstrate to investors that there’s growth to be found yonder.

Amid a raft of domestic regulatory and macroeconomic struggles, China’s largest company posted its slowest expansion on record; and it forecast continued challenges ahead.

With a mere 13% increase, revenue for the third quarter was rather pedestrian and the biggest miss in more than two years. Only its fintech and business services unit showed much strength, climbing 30% thanks to higher commercial payments and the consolidation of an online car-sales unit it took private in 2020. Unfortunately, that same division is a laggard when it comes to profitability, so it punches below its weight when contributing to overall profits. 

Its bread-and-butter businesses of online games, social networks and advertising all posted single-digit growth. Ads were particularly hard hit after a government crackdown on online education, weakness in the property sector amid troubles at China Evergrande Group, and new rules that limit how it presents marketing materials. That weakness is likely to continue, it said on Wednesday.

“Our advertising revenue growth rate slowed in the period and we expect advertising pricing industrywide may remain soft for several quarters, due to macro challenges and regulations affecting certain key advertising sectors.”

Even Tencent’s bottom line was padded by passive income rather than its actual operations. The company lumps interest and gains from investments into operating profit, but take those items away and the metric dropped 7% for the quarter.

That’s why it needs to look overseas, and hope that investors will, too. Companies like Singapore-based Sea and Zynga, with headquarters in San Francisco, are doing a roaring trade in online games as they tap into emerging-market growth and enjoy prolonged interest due to Covid-19 restrictions that kept people glued to their devices. 

So it makes sense Tencent is now trumpeting the fact that its international games revenue climbed 20% for the quarter, compared to 5% in the domestic market. In reality, the Shenzhen-based company has been a global player for many years. In 2016 it bought Finnish games company Supercell Oy, the maker of the Clash of Clans franchise, after purchasing League of Legends creator Riot Games five years earlier.

Until now, however, it’s only regularly disclosed foreign revenue in annual filings, the latest of which shows that 93% of its business came from mainland China while overseas sales doubled. 

With the once-hot China market cooling, Tencent plans to invest more to leverage its foreign exposure, including beefing up overseas games publishing operations and expanding into multiple regions. 

Bearish investors won’t be swayed because they know that even Tencent can’t dodge the numerous economic and regulatory speed bumps all companies face in China. But for those considering buying back in after Tencent’s 37% plunge from its January high, this new clarity on foreign operations is just the signal they need that the tech giant has a non-China growth plan after all.

Bloomberg Opinion. More stories like this are available on bloomberg.com/opinion


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