Tencent’s revenue growth hit by tech crackdown and Covid restrictions

Chinese tech group Tencent reported its slowest ever revenue growth after being hit by a Chinese crackdown on tech companies and tough Covid-19 restrictions.

The company’s revenue was largely flat in the three months to March, while its net profit fell 51% to Rmb23 billion ($3.4 billion) from a year ago, without analysts’ estimates.

Tencent’s results come a day after China’s top economics official met with dozens of executives and industry experts, pledging to ‘support’ tech companies amid a deepening economic crisis . Tencent said this was encouraging, but it would take time to translate into concrete action.

“From the highest level, clear support signals are being emitted [for “platform economy” companies like Tencent]”, said Martin Lau, president of Tencent, during an earnings call. “For this to translate into a real impact on our business, there is going to be a time lag.

While Shanghai’s lockdown didn’t officially begin until late March, Tencent said on Wednesday its fintech revenue began to feel the impact of the restrictions from mid-March.

James Mitchell, the company’s chief strategy officer, said the effect was particularly acute because many companies’ headquarters were in Shanghai, where advertising budget decisions were made. “Covid is hurting consumption, which doesn’t help,” he added. “We are not exempt from it.”

“Tencent and Alibaba are good weather stocks for China’s new economy and that reflects dire consumer and business confidence,” said 86Research analyst Charlie Chai.

Tencent, China’s most valuable company, said revenue from domestic games, an important segment for the group, fell 1% to Rmb33 billion from a year ago, while revenue from online advertising fell 18% to Rmb 18 billion.

“Online advertising revenue has declined. . . reflecting weak demand from advertiser categories including education, internet services and e-commerce,” Tencent said.

The company blamed the “direct and indirect effects” of the government’s decision last year to limit children to around three hours of play per week for the impact on national gaming revenue. Executives said that while game approvals have restarted, they expect the pace of approvals to continue to slow.

As it faces regulatory challenges closer to home, Tencent has sought to expand overseas over the past year and increased its investments in overseas start-ups.

But the company said it saw disappointing revenue from some of its international games such as PUBG Mobile, with global gaming revenue down 20% in the quarter to Rmb10.6 billion.

The value of the company’s investments in listed companies also fell to Rmb606 billion as of March 31 from Rmb982.8 billion at the end of last year. In January, the group sold a $3 billion stake in Singapore-based Sea. Mitchell said rising global interest rates posed risks to some of his investments in high-growth companies and he was managing that by accelerating the pace of divestments.

Bo Pei, technology analyst at US Tiger Securities, said Tencent missed revenue and profit estimates for the quarter, mainly due to economic weakness and pandemic shutdowns in China.

“Given that shutdowns began in mid-March and are still in place in some cities, including Shanghai, Tencent’s outlook for the second quarter is even more challenging,” he added.