Tencent’s Revenue Grows at Slowest Pace in Nearly Two Decades

Tencent Chief Executive Officer Pony Ma told reporters in a call on Wednesday that 2021 was a challenging year for the company, as Tencent sought to adapt to a tougher regulatory environment and structural changes to China’s internet industry.

Last year, Beijing released a raft of regulations seeking to diminish the influence of its largest internet companies and increase competition in the consumer-internet space. Tencent was largely spared the massive fines slapped on its peers

Alibaba Group Holding Ltd.

and

Meituan,

but the Shenzhen-based technology company was hit by new restrictions in the gaming sector.

Chinese authorities introduced strict rules last August limiting the time minors’ could spend playing videogames to curb videogame addiction, and what officials view as responsible for a host of societal ills, including distracting young people from school and family responsibilities.

Tencent, which gets a large part of its sales from videogames, said growth in its domestic games revenue weakened to 1%, while revenue from another key business segment, online advertising, fell 13%, as China’s wide-ranging regulatory actions last year hurt demand from advertisers across industries, particularly those in the after-school-tutoring and internet-services sectors.

Still, net profit jumped 60% to 94.96 billion yuan, mainly driven by gains of about 86 billion yuan from Tencent’s recent sale of its stakes in investee companies including Chinese e-commerce firm

JD.com Inc.

Revenue from Tencent’s fintech and business services, which include its cloud business, grew 25% to 48 billion yuan. Tencent said it would be shifting the focus of its cloud operations from “revenue growth at all costs” to improving its margins.

Tencent’s muted results add to a host of emerging troubles for the company. Last week, The Wall Street Journal reported that the company is facing a potential record fine for violations of anti-money-laundering rules and some central bank regulations. The Journal this week reported on the company’s plan to lay off thousands of employees, including about a fifth of the staff at its cloud unit, one of its fastest-growing businesses.

Tencent President

Martin Lau

told reporters Wednesday that the company would slow down hiring new staff this year as it adjusts to the new normal in China’s internet industry. “All companies in the industry will have to focus more on efficiency and cost,” he said.

Mr. Lau added he expects operations to improve in the second half of the year, as its advertising business resumes growth and as Chinese authorities resume the approval process for new games in the future.

Chinese technology giants’ earnings momentum has faltered across the board since the later half of 2021 as a tighter regulatory landscape took its toll on financial performance, while China’s economic recovery also slowed after a series of Covid-19 outbreaks since last summer. In the December quarter, Alibaba posted its slowest revenue growth since it went public in 2014, while its rival JD.com swung to a loss due to weaker top-line growth and higher expenses.

Shares of Chinese internet companies have plummeted over the past year, with Tencent falling about 12% this year.

Write to Keith Zhai at [email protected]