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profits plunge amid China Covid lockdowns, regulation

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Tencent Holdings signs atop an office building, Shanghai, China on March 22, 2022. China’s Tencent announced Wednesday that its quarterly profit fell by half from last year and its revenues stagnated. The company blamed cuts in advertising expenditures for consumer, travel and e-commerce businesses for the worst results since 2004 when it was listed.

Qilai Hen | Bloomberg | Getty Images

BEIJING — Chinese tech giant TencentReporting disappointing revenue for the first quarter across all business segments. This includes a drop in mobile payments from Covid lockdowns.

Tencent stock shares traded almost 7% lower on Thursday as the largest Hong Kong-listed Chinese stock. pulling down the broader Hang Seng index.

The company’s second largest revenue source, fintech and business services, fell by 10.8% quarter on quarter in the March 31-April 31 period to 42.77 billion Yuan ($6.29 trillion).

According to Wind Information data, this is the first consecutive drop after a 11.5% decrease from the fourth quarter 2019 to the first three month of 2020.

China’s GDP fell in the first 3 months of 2020 due to Covid lockdowns that were implemented in more than 50% of China mainland during the beginning of 2020.

In two years, it’s managed to contain the nation’s worst viral resurgence since March by using travel restrictions and targeted stay-home orders.

Tencent released an earnings statement Wednesday stating that commercial payment activity has been declining since March 2022 due to COVID-19’s resurgence in many cities in China.

According to the company, this had “negatively affected growth in payment volume for categories like transportation, dining service and apparel.” The management claimed that year-on–year volume in Shanghai declined for many weeks and had not improved since then, as per a transcript obtained through Refinitiv Eikon.

Tencent’s WeChat is the most prominent mobile payment app in China. WeChat (also known as Weixin in China) is the most popular messaging and social networking platform. Tencent is working to establish a short-video- and e-commerce platform within the app.

WeChat users active monthly grew 3.8%, domestically and internationally, to 1.29 million users.

Tencent reported that fintech service revenue increased at a slower pace over the past year, while services for businesses declined. However, they did not give specific numbers.

Overall, the fintech and business service segment saw a 10% increase in revenue compared to a year earlier. But ThatFactSet forecasts were off by 3.41 trillion yuan. This marked a slowdown after a 25 percent increase in fourth quarter 2021.

Tencent’s first quarter revenue across all business segments fell by 0.12% from a year ago to 135.47 billion yuan — also coming in below FactSet estimates for 140.82 billion yuan. From a year prior, profit attributable by shareholders fell 23%.

Gaming, Tencent’s largest source of revenue and business segment, saw a disappointing revenue increase to 72.74 billion Yuan for the first quarter, slightly higher than the previous quarter but still below the same period last year. These numbers reflect the challenges faced by Tencent. Beijing’s restrictions on licensing new gamesA slowdown on the international market.

Tencent is the owner of popular online games like League of Legends or Honor of Kings.

Future support from regulatory agencies

According to the company, they anticipate receiving game licensing in the future. However, China will approve less games.

China Renaissance analysts project that online games revenue will drop 0.3% over the next quarter. They also predict a 0.1% annual increase for full-year.

Beijing cracked down on gambling and monopolistic practices by the country’s Internet giants. Police have struck a more moderate toneRecent months have seen a shift to urging for “healthy” development of the platform economy, and an increase in digitalization.

Chinese Vice Premier Liu He this weekSeveral of the most recent high-level assurances were given to the tech sector.

Martin Lau, President of Tencent, cited Liu’s remarks in an earnings call on Wednesday.

Lau explained, adding that it was clear from senior level there were supportive signals being sent. However, implementation will take some time.

CNBC Pro provides more details about China

Another indicator was the effect of Covid lockdowns in China’s economy, as shown by results from advertising segment.

In the first quarter of 2018, online advertising revenues fell 18% from year to year, reaching 18 billion yuan. According to the company’s statement, the drop was caused by regulation regarding online advertisements and weak demand for education, internet services, and ecommerce companies.

According to James Mitchell (chief strategy officer at Tencent), the Shanghai lockdowns had a significant impact on advertising budgets of multinational corporations because many are located in Shanghai.

China’s retail sales slumpedAccording to data this week, April saw a decrease of 11.1% from one year earlier.

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