Falling in line following Beijing's crackdown on homegrown technology majors, the Chinese technology giant Tencent Holdings has pledged to ‘support' China's ‘new paradigm' of stricter government oversight after reporting its slowest growth on record.
Calling the latest growth numbers as the end of an era that nurtured some of the world's largest and most profitable corporations, company co-founder Pony Ma and President Martin Lau endorsed Beijing's year-long crackdown on Big Tech.
The company also pointed out it mirrored a backlash against the enormous power of internet giants globally and argued more regulation will lead to healthier growth in the long run.
Tencent joins Alibaba Group Holding Ltd. and other rivals in recognizing a new phase of cautious expansion, more than a year after the start of a bruising crackdown that eventually engulfed every internet sphere from e-commerce to online gaming and education.
Tencent followed Alibaba in reporting its slowest pace of quarterly growth on record as online advertising sales missed analysts' projections after they declined for the first time. And domestic gaming revenue grew a mere 1% — reflecting a months-long licensing halt that along with curbs on playtime for minors have sapped Tencent's biggest division.
“We are proactively embracing changes to better align ourselves with the new industry paradigm,” Lau said on a conference call after the results. “We have a long term oriented corporate culture that focuses on user value, social responsibility, technology innovations and compliance, the key elements for sustainable and healthy growth.”
The company also waved aside speculation it will embark on a share-buyback program like Alibaba announced this week, saying it will focus instead on core businesses like international games, cloud services and its WeChat messaging service, developing new games for its pipeline when the regulatory environment stabilizes later in 2022.
Tencent's stock slid more than 4% in Hong Kong while Naspers Ltd., its biggest external shareholder, closed more than 9% lower. Revenue rose just 8% to 144.2 billion yuan ($22.6 billion) in the quarter versus the 145.3 billion yuan average forecast — the first time that quarterly sales have grown by a single digit.
Net income rose to 95 billion yuan, surpassing the 31.5 billion yuan projected, but only because of a big one-time gain. Yet non-IFRS profit dropped a worse-than-feared 25%, and gross margins narrowed under an international expansion.
Tencent has lost more than $470 billion from its peak in 2021, even though it has largely escaped Beijing's direct scrutiny. The company has studiously endorsed the government's efforts, saying it was better in the long run to curb the excesses of the past that have led to disorderly competition in areas like ride-hailing, e-commerce and food delivery.