Over the years they have been two of the fastest growing companies in the world – with stock-market darlings valued at শীর্ 1.7 trillion at their top.
Now Tencent and Alibaba Group are fighting to keep pace with the most sustainable utilities as China’s crackdown on Internet giants has had its impact.
Wednesday’s Tencent results are expected to boost revenue by just 4.3% in the March quarter, compared to Alibaba’s growth estimate of 7.1%. Both will be record lows and lag behind the average growth of 8.6% reported last year by the 10 largest utilities, including Duke Energy Corporation and The Southern Co.
This is a significant turn of events between the two corporate stars that once embodied China’s modern economic miracle, before Xi Jinping’s massive technology crackdown forced the Internet industry to cut workers, suspend investment in new fields – and even pay billions for social reasons. The creator of WeChat, which has lost nearly 5 520 billion since its 2021 peak – could suffer the most after accepting what second-in-command Martin Lau called a “new industry example”.
China’s technical giants have made peace with a new era of vigilance and strict government supervision. Venture capitalists are breaking ground on some of the most popular internet trends in the country, such as community shopping, dying for high-profile startups and pressuring others to evaluate. TikTok-owner Bitdance Limited and online exporter Shin may postpone their stock-market debuts. Disillusioned investors who can no longer rely on China Tech Inc. to run their portfolios.
Marvin Chen, a Bloomberg Intelligence analyst, said: “There has been a fundamental shift in the growth story for China technology, with the sector focusing on quality and sustainable growth, as opposed to uncontrolled growth over the years.” “This could lead to a downturn in revenue and user growth as companies become more aware of how they open up their platforms for user acquisition, M&A, and competition.”
Tencent’s latest quarterly printout will give an indication of how the one-time free-wheeling sector has survived as the coveted lockdown has hit the world’s No. 2 economy. The market will also press for an indication whether the pace of Beijing’s campaign will slow down.
Companies, including Tencent and Alibaba, rose on April 29 after top Chinese leaders pledged to boost economic stimulus, boosting sentiment towards China’s Internet industry in recent weeks. The country’s top political advisory body plans to host a forum this week with private sector entities, including Baidu Inc, to discuss the development of the digital economy, Bloomberg News reports, as the ruling Communist Party prioritizes stability before reshuffling its leadership. This year.
Tencent has so far avoided direct scrutiny from Beijing – but has not been spared the widespread clampdown.
Online ad sales are projected to decline by about 15% since the first contract was signed in the December quarter – a blow that management signals will remain for most of this year. Last year’s big marketers, including online tutors, insurers and game developers, all suffered individual regulatory measures, while strict user privacy rules took a toll.
Meanwhile, WeChat operator is fighting to keep ByteDance at bay, with its hit app Douyin increasingly attracting advertisers from Tencent. In April, Tencent shut down its game streaming platform and increased fees for its Netflix-style service for the second time in almost a year to try and offset hits. Regulators have banned minors from tipping on livestream platforms, echoing a similar policy in the case of online gaming.
For its bread-and-butter game segment – still the world’s largest publisher – Tencent will have to wait a little longer for a resurgence.
Online gaming revenue is expected to grow by only 4.9% – the slowest in three years. Last month, China approved the first batch of new games from July, ending a month-long hiatus and bringing the 44 billion market to an end. Tencent and its nearest competitor NetEase Inc. Was not on the list.
Industry observers expect them to be included in the next round, probably in the second quarter. Previously, Tencent would have to lean towards aging titles such as the Honor of Kings and Peacekeeper Elite as it accelerates betting in overseas markets, which now account for about a quarter of gaming sales.
Bokom International analysts, led by Connie Gu, estimate that domestic gaming sales fell 2.3% in the first quarter, compared to a 24% increase internationally.
Then there is Fintech and the business arm, now Tencent’s No. 1 revenue driver That segment – which includes cloud services – is expected to expand 18%, slightly lower than the previous quarter but still the only unit expected to post double-digit growth. A cowardly resurgence in China, combined with punitive lockdowns in cities like Shanghai and Shenzhen, could delay cloud projects and cool transactions.
Regulators are now considering the need for Tencent to fold its WeChat Pay service into a newly established financial holding company, Bloomberg News reported in March, an overhaul of the Fintech arm that could weaken its entire social media business. Tencent executives insist they are talking to regulators and will comply with requirements.
“The core share price of the sector remains more on policy than on the fundamentals of the driving company,” Daiwa analyst John Choi wrote in a May 13 note. “As the market is increasingly focused on profitability, we believe that companies are prioritizing efficiency over scale expansion, so investors should be aware of slowing growth across this sector in 2022 and 2023.”
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