Tencent Holdings on Wednesday reported a 60 per cent jump in profit in the three months ended December 31 on the back of its divestment of JD.com stock, as revenue slowed amid Chinese regulators’ tightened scrutiny of the country’s Big Tech companies. The Shenzhen-based internet giant, which runs the world’s biggest video gaming business by revenue and China’s largest social media platform, posted a 94.9 billion yuan profit (US$14.9 billion) in the fourth quarter, up from 59.3 billion yuan a year ago. That was more than triple the market’s 31.5 billion yuan consensus estimate, according to Bloomberg data. Its fourth-quarter earnings were boosted by net gains of 86.2 billion yuan, which included 78 billion yuan from offloading its JD.com stock . Total revenue in the December quarter reached 144.2 billion yuan, up 8 per cent from 133.7 billion yuan a year ago, which was in line with the 145.3 billion yuan consensus estimate. The company’s steady sales performance was on the back of double-digit growth at its financial technology services operation, while its video gaming and online advertising businesses slowed. “2021 was a challenging year, in which we embraced changes and implemented certain measures that reinforced the company’s long-term sustainability, but had the effect of slowing our revenue growth,” Tencent founder, chairman and chief executive Pony Ma Huateng said in a statement released after the market closed. “Despite financial headwinds, we continued to make strategic headway, including driving widespread adoption of our enterprise software and productivity tools, increasing content creation and consumption in our video accounts, and expanding our international games business.” Tencent shares in Hong Kong were up 0.26 per cent to close at HK$389 on Wednesday. The company’s overall profit in 2021 was 224.8 billion yuan, up 41 per cent from 2020, beating analysts’ consensus estimate of 162 billion yuan. Full-year revenue totalled 560.1 billion yuan, a 16 per cent increase from a year earlier, but below the 564.4 billion yuan market estimate. Moving forward, the company expects to face more regulations. “It’s going to be new norm for the industry,” according to company president Martin Lau Chi-ping in a press briefing after the market closed on Wednesday. In response, Lau said Tencent is progressively implementing initiatives to control marketing and employee costs as well as to rationalise its noncore businesses. To control headcount, Tencent will either streamline or exit some noncore businesses, Lau said in a separate conference call with analysts on Wednesday. “Every year, we have natural turnover, and in some cases, we need to slow down replacement of those turnovers,” he said. “But overall, our headcount will still be higher by the end of this year than the previous year.” “For several years, [internet] industry participants have overemphasised zero-sum competition through aggressive marketing, reckless expansion … while overlooking the most important elements of sustainable growth,” Lau said. “As a result, the industry’s growth has become frothy and unhealthy.” With new regulations introduced last year to correct misbehaviour [in the market], “we strongly believe that it is time for the internet industry to return to its roots of creating sustainable value in a responsible way”, he said. Are more divestments in store for internet giant Tencent in 2022? On the recent issuance of two financial holding company licences in China, Lau said Tencent remains engaged in discussions on whether the company qualifies to be granted one. “We felt that it’s actually neutral [for Tencent] in the immediate term because we would be able to comply and it should have no impact on the business,” he said. “Longer term, it could be positive because it will be under the overall framework for the regulators.” Following the JD.com transaction and the sale of its stake in Singapore-based e-commerce giant Sea , Tencent expects to periodically make divestments and fund new investments. “We consider these on a situation-by-situation basis,” said Tencent chief strategy officer James Mitchell, noting that about 80 per cent of the company’s investments has been in private enterprises. “Just as with Sea and JD, we made the decision based on our own internal logic. There was no external direction or pressure on us.” On the metaverse , Tencent is expected to pursue new growth from this arena, with an eye on helping real-world businesses. “We’re looking at the metaverse as an integration of the physical and digital worlds, rather than a pure virtual sphere,” company chief Ma said. “That is in line with our concept of an all-real or quanzhen internet.” China’s latest freeze on new video game licences may surpass previous record delay Tencent’s domestic video gaming revenue grew just 1 per cent to 29.6 billion yuan in the fourth quarter, while its international games business rose 34 per cent to 13.2 billion yuan. The latest freeze on new video game licences in China entered its ninth month on Wednesday, which has put more pressure on the industry and its many small developers . CSO Mitchell, however, does not see slower growth in games as the new normal for Tencent. Referring to the game licensing freeze in 2018, he indicated that some deceleration in the industry followed. But when new games came to market, he said those fears and concerns moved into the background. “I think that’s the situation we’re in now,” Mitchell said in the conference call with analysts. “The game industry is actually the youngest, the most vigorous and most well-positioned to benefit from technology change within the entertainment industries,” he said. “So our belief is that the China economy will grow rapidly over time. In entertainment and leisure, spending will grow more rapidly. And then activity around games will also grow very rapidly.” Tencent, Baidu lead Chinese Big Tech firms in VR, AR patent filings Tencent’s fintech and business services operations grew 25 per cent last quarter to 48 billion yuan, bolstered by increased commercial payment volume. WeChat Pay, which runs inside ubiquitous super app WeChat , remains one of the country’s top two mobile payment services. Total monthly active users on WeChat and the mainland version Weixin reached 1.27 billion at the end of December. Online advertising, meanwhile, remained under pressure because of weaker demand amid macroeconomic headwinds and Beijing’s regulatory crackdown. Tencent reported 21.5 billion yuan in revenue for ads in the fourth quarter, down 13 per cent from a year ago. Although partially offset by consolidating Sogou ’s ad revenue, the result reflected weakness in categories including education, games and internet services, according to Tencent’s earnings report.