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As China's Regulatory Obstacles Persist, Tencent Announces Its Lowest Revenue Growth On Record

As China's Regulatory Obstacles Persist, Tencent Announces Its Lowest Revenue Growth On Record
Chinese tech giant Tencent posted its worst quarterly revenue increase in history for the fourth quarter of 2021 on Wednesday, as the Chinese digital behemoth continues to suffer the effects of Beijing's regulatory tightening on the domestic tech sector.
The company, on the other hand, had a significant increase in earnings in the fourth quarter. Tencent's performance in the fourth quarter compared to Refinitiv consensus estimates is as follows:
Revenue: 144.18 billion Chinese yuan ($22.62 billion), up 8 per cent year on year from 147.6 billion yuan. This is the company's worst revenue increase since it went public in 2004.
94.96 billion yuan profit attributable to the company's equity investors, versus 30.7 billion yuan projected. That's a 60 per cent increase year over year. This was due to a significant one-time gain from the sale of assets.
Tencent earned 560.12 billion yuan in total revenue in 2021, up 16 per cent from 2020. Analysts had predicted a total of 566.3 billion yuan. That was the weakest rate of annual revenue increase ever recorded.
Tencent has encountered a number of headwinds as a result of China's crackdown in fields ranging from gaming to education, and its market value has dropped by nearly $470 billion from its peak in early 2021.
“2021 was a challenging year, in which we embraced changes and implemented certain measures that reinforced the company’s long-term sustainability, but had the effect of slowing our revenue growth,” Tencent said in a statement.
Tencent's biggest source of revenue is online games, but the industry has been hit by headwinds.
Regulators reduced the amount of time youngsters under the age of 18 could play internet games last year. Meanwhile, since July of last year, officials have not permitted the introduction of any games. To be launched and monetized in China, games must first receive regulatory approval.
In the second half of 2022, Tencent plans to "completely internalise the impact" of the laws on under-18s, according to the company. When the government allows the release of more games, the firm says it will gain from more new game launches. Tencent's existing titles, such as Honor of Kings, drove a 1 per cent increase in domestic gaming revenue to 29.6 billion yuan.
This was a slower rate of increase than the 5 per cent witnessed in the third quarter.
Tencent has been increasing its focus on its global markets as the Chinese home games business faces headwinds. In the December quarter, international games revenue was 13.2 billion yuan, up 34 per cent year on year. This was a faster rate of increase than the prior quarter.
“We will continue to release new titles, which we expect to drive additional growth, particularly for 2023 and beyond,” Tencent said.
Beijing also took action against after-school education companies last year. Tencent's ad revenue has suffered as a result of this, as education firms would no longer buy ads from Tencent.
Ad revenue for the fourth quarter was 21.5 billion yuan, down 13 per cent from the previous year.
Tencent said this “reflected weakness in advertiser categories including education, games and Internet services.”
 In the December quarter, revenue from its fintech and business services sector was 48 billion yuan, up 25 per cent year on year but below projections of 49.26 billion. Tencent's WeChat Pay business and its rapidly expanding cloud computing operation are both housed in this division.

Christopher J. Mitchell

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