Tencent resumes growth as China’s Internet sector recovers

(Bloomberg) — Tencent Holdings Ltd. revenue. increased after two quarterly cuts, fueling hopes that Beijing will once again allow the world’s largest internet arena to thrive.

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Revenue rose to 144.95 billion yuan ($21 billion) in the three months ended December, in line with analysts’ expectations. Tencent’s key advertising division returned to year-over-year growth this quarter, reflecting improved demand.

Martin Lau, the company’s president and Pony Ma’s deputy, is stepping down from the board of directors by rotation at the end of this year’s general meeting, Tencent said in a separate statement. Shares of Prosus NV and Naspers Ltd., Tencent’s largest shareholder, rose 2.4% after the release of the results.

Net income of 106.3 billion yuan was supported by a one-time gain of more than 85 billion yuan from changes such as the sale of Meituan shares, the company said in a statement on Wednesday.

The Chinese gaming and social media leader has raked in more than $160 billion in market value since falling in October, helped by Beijing’s renewed approval of blockbusters after a months-long hiatus. Since then, a number of government officials have backed the gaming arena, joining the Xi Jinping administration in a plea of ​​support for the private sector. Tencent could also benefit from China’s post-pandemic economic recovery, which should free up corporations and consumers to return to regular advertising and entertainment spending.

Many industry executives and investors warn against buying the Chinese government’s rhetoric outright, fearing that Beijing could pull the reins again once the world’s No. 2 economy stabilizes. Much of the Internet sector is still shell-shocked after two years of drastic regulatory bans on everything from e-commerce and the sharing economy to online content and its consumption.

Tencent’s domestic game sales were once sustenance but have barely grown over the past year, but global hits like Valorant and Lost Ark should fill up their long-empty pipeline in 2023 after the Shenzhen-based company received its first batch of permits. for the big games in December. . The world’s largest game publisher is even hatching plans for an esports league, Valorant, to help get the attention and sponsorship of shooter Riot Games Inc.

Read More: Tencent Plans ‘Valorant’ League as Game Suppression Ease

Tencent’s appetite for overseas gaming assets is growing at a time when the company is shedding other assets and spending more wisely at home. In November, WeChat pledged $20 billion in shares in food delivery leader Meituan as a special dividend, about a year after a similar sale to JD.com Inc. and Sea Ltd. However, growing tensions between the US and China — as evidenced by a brewing push for a forced ban or sale of TikTok by ByteDance Ltd. in the US — could hurt Tencent’s international gaming foray.

What Bloomberg Intelligence Says

China’s video game regulator has approved 27 more imported games, up from 44 approved in December 2022. Tencent and NetEase each had one minor import approved in the last round. This confirms our view that Chinese video game giants will need to become more self-reliant in creating intellectual property in the future as barriers to foreign game companies rise. The news also highlights a regulatory shift in favor of smaller studios.

— Robert Lee and Tiffany Tam, BI Analysts

WeChat’s nascent short video feed was a rare bright spot in Tencent’s portfolio. The company is under pressure to better monetize China’s most ubiquitous app as users and marketers flee to competitors like ByteDance. Views on WeChat video accounts tripled last year as executives forecast ad sales through the feature to reach 1 billion yuan in the fourth quarter.

Like its competitors, Tencent has imposed unprecedented cost caps to weather the Chinese economic crisis in 2022. Tencent’s cloud computing business is reinventing itself to shed unprofitable contracts and focus on boosting profits, while sluggish businesses such as e-commerce and live streaming have been completely shut down. In December, billionaire founder Pony Ma delivered a rare tirade about smug employees at a city hall meeting, emphasizing that aggressive spending controls “should become a habit” in the future.

While companies like Microsoft Corp. and Google are rushing to showcase their latest AI creations, Tencent said its plans for ChatGPT-style tools are underway. OpenAI’s ChatGPT, now a global phenomenon, has sparked a race among Chinese tech firms to catch up, and Baidu Inc. has already received positive feedback from selected users.

(Updates with additional information)

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