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The Tencent Holdings offices in Beijing, China, Aug. 15, 2022. Photo: Bloomberg

Tencent’s cost-cutting not over as video gaming and social media giant slashes jobs, cancels free fruit in staff canteen

  • Shrinking second-quarter revenue and profit at Tencent are a reminder that the Chinese tech giant’s heyday is over
  • Tencent has also shut down a number of ‘noncore businesses’ in recent months, including online education and video game live-streaming

Chinese video gaming and social media giant Tencent Holdings will continue cost-cutting after slashing about 5,500 jobs in the second quarter, according to company executives who spoke after the firm reported its first revenue fall on record.

Shrinking second-quarter revenue and profit at Tencent, which was known for owning “half the mountains and rivers” in China’s tech sector, provide a reminder its heyday is over amid China’s economic slowdown and Beijing’s regulatory scrutiny.

Alibaba Group Holding, the Chinese e-commerce giant that owns the South China Morning Post, cut its headcount by nearly 10,000 in the June quarter.

Tencent’s second-quarter results come as the Shenzhen-based company withdraws certain minor employee benefits, a further sign of how serious it takes cost cutting. Company canteens will no longer provide free fruit to employees starting this week, a move that came days after it cancelled free breakfasts and dinners for non-staff employees on its campus, according to employees.

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Tencent has also shut down some “noncore businesses” in recent months, including in online education and game live streaming, while trimming its loss-making digital content services.

“We controlled our headcount by optimising our workforce and controlled growth and staff costs,” Tencent president Martin Lau Chi-ping said at the earnings call with analysts on Wednesday. “We have been and will be implementing additional efficiency initiatives at a business level to support our earnings recovery, even while the macro environment remains challenging.”

Tencent is also pulling back from its aggressive strategy of external investments. Reuters reported on Tuesday that the company intends to sell its 17 per cent stake in food delivery giant Meituan to appease Beijing’s concerns over its influence on the economy, although Tencent officials on Wednesday said the report was “not accurate”, without further elaboration.

The report has renewed speculation that the empire built by Tencent co-founder and CEO Pony Ma Huateng is beginning to shrink.

Tencent’s stake in e-commerce giant, for instance, has already been cut significantly after it handed out US$16.4 billion worth of shares as dividends last year.

This file photo taken on May 26, 2021 shows people walking past the Tencent headquarters in Shenzhen, Guangdong province. Photo: AFP

Ma, who has largely stayed out of public view in recent years, was once an influential figure in the industry. During a round-table dinner at the annual World Internet Conference in Wuzhen in late 2017, Ma was seated in a prominent position, alongside 15 other Chinese tech entrepreneurs and investors. Wang Xing, the founder of Meituan, sat to Ma’s right while founder Richard Liu Qiangdong was on the left.

Tencent’s largest shareholder, Prosus, said in June it would offload some of its stake to fund its own share buy-back plans, weighing further on Tencent’s Hong Kong-traded stock which is at its lowest level in five years, and down about 40 per cent from its peak in early 2021.

On a more upbeat note, analysts said Tencent’s sales may have hit bottom in the second quarter.

Tencent shuts down another app meant to compete with ByteDance

Tsz Wang Tam, a Hong Kong-based equity analyst at DBS Bank, said the revenue drop in the period was an exception as the Chinese economy was hit by Covid-19 lockdowns in April and May. Tencent’s revenue growth is likely to return in the third quarter and fourth quarter, although it is likely to be single digits growth, Tam added.

Tencent reported its first ever sales decline since its 2004 listing, with June quarter revenue down 3 per cent year on year to 134 billion yuan (US$19.8 billion) and net income falling 56 per cent year on year to 18 billion yuan.

Shawn Yang, Shenzhen-based managing director of Blue Lotus Capital advisers, said that while Tencent may have bottomed out, its cost-cutting measures were not a long-term strategy that could help turn sales around.

“The more important thing is the growth of new businesses, and Video Accounts has been able to contribute certain growth to the overall business and will continue to grow in upcoming quarters,” Yang said, referring to Tencent’s short video platform within its super-app WeChat.