Tencent’s Q2 Disclosure a Mixed Blessing, Hoping to Defy Gravity in Shaky Market
Chinese internet giant Tencent logged its first-ever quarterly revenue fall along with declining net profit for the fourth consecutive quarter, according to its second-quarter 2022 results released on August 17. The non-IFRS measure of adjusted earnings, mostly pertaining to the social platform king’s principal operations, pointed to a narrower decline in earnings, however.
The mixed blessing is renewing contentions over whether one of the country’s most valuable yet profitable internet behemoths can truly defy the gravity of recent macroeconomic downturn and policy uncertainties.
In the second quarter, Tencent posted 134.03 billion yuan ($19.42 billion) in revenue, down 3% from the year before, its first quarterly revenue drop on a yearly basis since its listing 18 years ago. Revenue edged down 1% from the previous quarter.
Tencent‘s net income plunged 56% year-on-year to 18.62 billion yuan during the past quarter. On a quarterly basis, its earnings shrank by 20%.
Pursuant to non-IFRS financial measures, the internet giant posted a 17% fall in net profit, a narrowed moderation for two quarters in a row. Its non-IFRS earnings grew by 10% from the first quarter.
“During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses, enabling us to sequentially increase our non-IFRS earnings, despite difficult revenue conditions,” read a company statement revealing the quarterly results, citing Tencent Chairman and CEO Pony Ma Huateng.
The latest report remains far short of signaling a remarkable turnaround, as the social networking and gaming titan continues an effort to emerge from the fallout of policy uncertainties and COVID-19-induced macroeconomic challenges.
At the end of June, Tencent employed 110,715 staff members, downsizing by 5,498, or roughly 4.7% from its employee count at the end of March.
A closer look at its quarterly report also revealed that Tencent notched a slight drop in its games revenues, both domestically and internationally.
The company cited a post-pandemic digestion period confronting both the international and domestic game sector. More specifically, the domestic industry was puzzled by “transitional issues including relatively fewer big game releases, lower user spending, and the implementation of minor protection measures.”
Even its most famed gaming titles such as Honor of Kings, Moonlight Blade Mobile and League of Legends booked decreased revenues, while its recently launched titles including League of Legends: Wild Rift, Return to Empire and Fight of The Golden Spatula reported incremental revenues.
In a sign of the difficulty in exploring games opportunities, Tencent has come up empty in terms of new title approvals since the country’s regulators ended an approval freeze in April. A total of 241 games have been granted publishing licenses in four batches since then.
Further, revenues from online adverting slid by 18% for the second quarter on a yearly basis, an indication of “notable weakness in the internet services, education and finance sectors, especially in April and May.”
Meanwhile, Tencent maintained its social networking muscle, with combined monthly active users of Weixin and WeChat of nearly 1.3 billion as of June 30, an increase of 3.8% year-on-year and up 0.8% quarter-on-quarter.
Revenues from fintech and business services rose 1% year-on-year during the second quarter. However, fintech services revenue growth slowed down from prior quarters, according to the company, citing the domestic Omicron resurgence that weighed on commercial payment activities in April and May.
Tencent continued to up the ante in R&D spending in the second quarter, paying out 15.01 billion yuan in R&D, a rise of 17% year-on-year.
“Looking forward, we will focus on enhancing the efficiency of our businesses and launching new revenue initiatives, including in-feed advertisements in our popular Video Accounts, while continuing to drive innovation through R&D,” Ma said in the statement, envisioning revenue growth as the Chinese economy expands.
The world’s second largest economy eked out a 0.4% expansion in the second quarter amid varied complexities, the slowest pace since the onset of the pandemic, but the market has bet on a pronounced rebound in the second half following a slew of pro-growth measures.
During an earnings call following the financial disclosure on Wednesday, Tencent disclosed plans to implement cost control measures and expected subsequent costs to be on a continued downtrend with more optimizing moves targeting head-counts and payment.
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The company envisaged a comeback to growth in revenue terms over the next few quarters even though its games revenues remain largely unchanged.
Tencent also rebuked reports about its stake sale in food delivery giant Meituan as inaccurate at the conference call.
Tencent‘s shares in Hong Kong trading opened higher on Thursday.
Still, its stock has fared much worse than many other domestic peers, having dived nearly 60% since hitting an all-time high of HK$749.54 per share in February 2021, epitomizing a challenging new era for Chinese internet giants that have for years roared amidst rapid economic growth and loose regulations.