Tencent Resumes Growth As China’s Internet Sector Stirs

Tencent Holdings Ltd’s revenue inched up after two quarters of contractions, fueling hopes that Beijing will again allow the world’s largest internet arena to thrive.

Revenue rose to 144.95 billion yuan (RM93.8 billion) for the three months ended December, matching analyst expectations. Tencent’s key advertising division returned to year-on-year growth in the quarter, reflecting improving demand.

Martin Lau, president of the company and second in command to Pony Ma, is retiring from the board by rotation at the end of this year’s general meeting, Tencent said in a separate filing. Shares in Prosus NV and Naspers Ltd, representing Tencent’s biggest shareholder, rose as much as 2.4% after the results.
Net income, which came in at 106.3 billion yuan, was buoyed by a one-time gain of more than 85 billion yuan from changes such as the disposal of stock in Meituan, the company said in a filing Wednesday (March 22).

China’s gaming and social media leader gained more than US$160 billion of market value since hitting an October trough, helped by Beijing’s resumption of approvals for blockbuster games after a months-long halt. A succession of public officials have since then endorsed the gaming arena, joining Xi Jinping’s administration in declaring support for the private sector. Tencent is also well positioned to benefit from a Chinese post-Covid rebound, which should free up corporations and consumers to return to regular spending on advertising and entertainment.

Many industry executives and investors have cautioned against buying wholesale the Chinese government’s rhetoric, worried that Beijing may again tighten the reins once the world’s No. 2 economy is stabilised. Much of the internet sector remains shell-shocked after two years of blistering regulatory clampdowns on everything from e-commerce and the sharing economy to online content and its consumption.

Once its bread and butter, Tencent’s domestic gaming sales barely grew over the past year, but global hits like Valorant and Lost Ark are slated to refill its long-empty pipeline in 2023 after the Shenzhen company secured its first batch of major game approvals in December. The world’s biggest games publisher is even hatching plans for a Valorant esports league, which will help generate eyeballs and sponsorships for the Riot Games Inc shooter.

Tencent’s appetite for foreign gaming assets is increasing at a time when it’s divesting other assets and spending more judiciously at home. In November, the WeChat operator pledged to dole out US$20 billion of stock in meal delivery leader Meituan as a special dividend, about a year after similar divestitures of JD.com Inc and Sea Ltd. However, rising tensions between the US and China — as evidenced by the brewing push to force a ban or the sale of ByteDance Ltd.’s TikTok in the US — could hurt Tencent’s international gaming foray.
What Bloomberg Intelligence says:
China‘s video-games regulator has approved a further 27 imported titles, down from the 44 it approved in December 2022. Tencent and NetEase each had one minor imported title approved in the latest round. This supports our view that China’s video-game giants will in future need to become more self-reliant in generating intellectual property as barriers to foreign gaming companies increase. The news also highlights regulators’ shift toward favoring smaller studios.— Robert Lea and Tiffany Tam, BI analysts

WeChat’s fledgling short-video feed has been a rare bright spot in Tencent’s portfolio. The company is under pressure to better monetise China’s most ubiquitous app, just as users and marketers flee to rivals like ByteDance. WeChat’s video accounts tripled in views last year, as executives forecast 1 billion yuan of ad sales through the feature in the fourth quarter.

Like its rivals, Tencent implemented unprecedented cost curbs to make it through 2022’s Chinese economic malaise. Tencent’s cloud computing business is reinventing itself to get rid of loss-making contracts and focus on improving margins, and sluggish businesses like some e-commerce and live-streaming have been shut down altogether. In December, billionaire founder Pony Ma delivered a rare rant about complacent employees in a town hall meeting, stressing aggressive cost controls “should become a habit” going forward.

At a time when companies like Microsoft Corp and Google are rushing to show off their latest artificial intelligence creations, Tencent has said its plans for ChatGPT-style tools are underway. OpenAI’s ChatGPT, now a global phenomenon, has triggered a race among Chinese tech firms to catch up, and Baidu Inc has already scored positive reviews among selected users.

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