China’s tech industry growth loses steam as Tencent’s depressed earnings show impact of economic slowdown, analysts say
- The internet giant’s shares fell 7 per cent in Hong Kong on Thursday to lead a broad-based rout of China tech stocks, a day after posting its lacklustre results
- The government’s recent signal to support China’s digital economy could help spark an industry turnaround in the second half of this year
“It raises questions about how tighter regulation and a slowing economy could structurally decrease the earning power of China’s dominant tech platforms,” Norris said.
The disconcerting quarterly performance of Tencent, China’s most valuable tech company, showed how shrinking economic activity has cast a pall over the whole internet industry.
“While it may be fashionable to point the finger at the regulatory landscape, Tencent’s flat revenue growth reflects a broader economic slowdown in China,” said Norris, citing the company’s depressed advertising business.
The tech giant’s ad sales, which were down 18 per cent to 18 billion yuan (US$2.7 billion) in the March quarter, saw the sharpest decline among its major business segments.
Tencent posts no revenue growth in Q1 as Covid lockdowns hit economy
Covid-19 lockdown measures have also disrupted both online and offline transactions, as Tencent reported weak commercial payment activities since mid-March.
“Its fintech division had provided a promising revenue source,” said Daphne Lui, associate professor at ESSEC Business School Asia-Pacific in Singapore. “But the Covid-19 lockdowns, especially in Shanghai, have significantly hampered its contribution in the first quarter.”
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“Those hoping for a rebound in China tech stocks will come away disappointed, as 2022 is unlikely to feature meaningful revenue or earnings catalysts,” AgencyChina’s Norris said.
Still, Tencent and its tech industry peers have something to look forward to.
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Other market analysts, however, expect the government’s show of support to spark an industry turnaround in the second half of this year.
“I’m expecting revenue and adjusted earnings growth to come back in the third quarter this year,” said Ivan Su, equity analyst at Morningstar.
“In my opinion, regulations impact sentiment much more than fundamentals,” Su said. “If we’re talking about just stock price performance, more game licence releases will help, and so will an official announcement of the completion of ratifications.”