Tencent Stock Down 7% on Weak First Quarter Sales

Lower-than-expected revenue and significantly reduced ads business sent shares in Tencent lower Wednesday.
May. 18, 2022 21:13
Tencent Stock Down 7% on Weak First Quarter Sales

(CapitalWatch, May 18, New York) Chinese tech giant Tencent Holdings (OTC: TCEHY; HKEX: 0700) released disappointing first quarter financials on Wednesday, showing its slowest revenue growth on record amid Covid-19 lockdowns and the continued impact of the regulatory crackdown.

In the three months through March, the company generated slightly over $21 billion in sales, nearly flat compared with the same period last year. Revenues from the ad segment decreased 18% year-over-year and the games segment was down 1%, while fintech and business services improved 10%, according to the report. Profit in the first quarter was $3.7 billion, down 52% year-over-year.

That marked the slowest pace of revenue growth on record since Tencent became publicly traded in 2004.

The company has reduced spending and "rationalized certain non-core businesses," as chairman and CEO Huateng Ma said in the statement today. At the same time, Tencent "continued investing in strategic growth areas including enterprise software, Video Accounts and international games," Ma said.

Tencent dominates in China's gaming space and is the operator of the ubiquitous social app WeChat. According to today's report, the ads business suffered as a result of weak demand in industries including education, internet services, and e-commerce. The regulatory environment also negatively affected the online advertisement sector, Tencent said.

The domestic games space in China has been on a standstill since the second half of 2021 as Beijing has tightened restrictions for minors and suspended the approval of new games, which has strained China's game market, the largest in the world. Just last month, China's National Press and Publication Administration (NPPA) began approving games again in a sign of an easing of the regulatory environment.

Tencent pointed out that its flagship game, Honor of Kings, released fewer commercially successful items during the Chinese New Year holiday period than in prior years, but resumed year-on-year growth during March after the Chinese floral festival. Meanwhile, the second-to-top Peacekeeper Elite game celebrated its third anniversary last month with a new release. In the international market, the company noted it saw a "normalization" of the market in a post-Covid period in terms of a lowered user activity.

In over-the-counter trading, TCEHY shares dropped 7% to $43.51 apiece Wednesday. In Hong Kong, the company closed down nearly 1%, at HK$365.60 per share.