For the full year, Tencent reported a net profit of 188.2 billion yuan, down 16 per cent compared to the previous year, but higher than estimates of 113.7 billion yuan. Total revenue dropped 1 per cent to 554.6 billion yuan, marking the company’s first ever annual revenue decline. It was slightly better than the market estimates of 554.2 billion yuan by analysts polled by Bloomberg.

Tencent also announced on Wednesday that Lau, 49, will step down from the board while remaining as company president and chairman of its investment committee to “further segregate the responsibilities of the board”.

The company last August added a female independent non-executive director – social welfare scholar Zhang Xiulan – to its board.

The financial results come after a year of cost-cutting efforts by Tencent to combat economic headwinds and industry consolidation, including downsizing its workforce, shutting down non-performing businesses and exiting some investments.

The company had 108,436 employees by the end of 2022, down 3.8 per cent from the 112,771 employees it had at the end of 2021, according to the earnings statement.

“During 2022, we increased our business efficiency, sharpened our focus on core activities, and developed new services and revenue lines including Video Accounts and international games,” said Pony Ma Huateng, chairman and CEO of Tencent. “These changes position us to benefit from, and contribute to, a rebound in China’s economic growth which our users’ activity suggests is now under way.”

Ma said Tencent’s cost-cutting efforts will continue in 2023 and become a long-term habit, as the company invests its manpower and resources in advantageous areas, instead of repeatedly engaging in attrition warfare in highly competitive sectors.

“In terms of investing capital in other companies domestically, we’re actually quite optimistic, given what we see on China consumption,” said James Mitchell, Tencent’s chief strategy officer in a conference call on Wednesday. “We ourselves have therefore become more active in terms of making investments in small, early stage, [and] privately-held companies.”

Tencent’s advertising business showed signs of recovery in the December quarter, with revenue from online advertising rising 15 per cent year on year to 24.7 billion yuan. It was boosted by demand associated with Video Accounts, a short video function in the company’s super app WeChat.

China’s tightened scrutiny of the video gaming sector continued to weigh on Tencent. Revenue from its value-added service, comprising the company’s video gaming and social network businesses, fell 2 per cent from the previous year to 70.4 billion yuan in the fourth quarter.

Domestic video game sales, traditionally one of Tencent’s strongest revenue drivers, declined 6 per cent to 28.6 billion yuan. The company said it recorded “significantly reduced” time spent by minors on its games in 2022.

Quarterly revenue from Tencent’s fintech and business services fell 1 per cent to 47.2 billion yuan, as Covid-19 outbreaks temporarily suppressed payments activities, the company said.

Tencent shares in Hong Kong rose 1 per cent on Wednesday ahead of the earnings announcement, closing at HK$347.2.

In November the company said it was giving away over 90 per cent of its stake in delivery services giant Meituan to existing shareholders as a special dividend, a company it has backed since 2015. This came after it cut its holdings in e-commerce platform Sea among others in early 2022, amid Beijing’s curbs on the “irrational expansion of capital” and the company’s need to cash in some returns.

However, the outlook for its core video gaming business has brightened after regulators granted new licences in September after a 15-month drought. It has also bagged approvals for major foreign titles, including tactical shooter game Valorant from US developer Riot Games, and multiplayer online battle arena game Pokémon Unite by its own TiMi Studio.

Beijing’s crackdown on Big Tech has eased after top leaders said that China’s “platform enterprises” will be supported to “fully display their capabilities” in bolstering economic growth, job creation and international competition, according to a readout from a closed-door economic meeting in December.

However, some analysts remain concerned by the murky economic outlook, the lingering effects from pandemic lockdowns, and rising geopolitical tensions that have put Chinese firms under scrutiny in Western markets.

“Tencent’s near-term earnings outlook is positive, though subject to a high degree of uncertainty due to the legacy impact of China’s Covid-19 lockdowns,” Bloomberg Intelligence analyst Robert Lea wrote in a recent note.

“We expect its earnings to improve in [the first three quarters] as normal daily activities resume amid the country’s economic reopening. Yet the outlook is [still] uncertain and vulnerable to China’s macro risks.”