Tencent posts slower quarterly revenue growth as profit rises 60 per cent on back of one-off gain from divesting JD.com stock
- The internet giant’s fourth-quarter profit was boosted by net gains of US$13.5 billion, which included proceeds from offloading its JD.com stock
- Total revenue in the December quarter reached US$22.6 billion, up 8 per cent from a year ago, as 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.”
“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.”
“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
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
Total monthly active users on WeChat and the mainland version Weixin reached 1.27 billion at the end of December.