Weak Chinese economy causes first ever turnover drop for Tencent

Tencent‘s advertising revenue has plummeted as China’s economy weakens. For the first time in its history, this is causing turnover to drop for the owner of WeChat, the app through which Chinese people chat, play games and buy.

5,000 jobs cut

For the first time ever, Chinese technology giant Tencent has had to admit a drop in quarterly sales: a 3 % decline brought sales down to 134 billion yuan (19 billion euros), while net revenues more than halved. As a result, the company felt obliged to cut 5,000 jobs (almost 5 % of the total workforce).

The culprit is a record drop in online advertising revenues as China’s economy suffered from more closures and lockdowns due to the pandemic. Moreover, the bursting of the Chinese real estate bubble and continued government pressure on its technology giants all caused Tencent’s online advertising revenues to fall by 18 %.

New phase in Chinese market

Still, the company held up better than expected: its net profit of 28.1 billion yuan (4 billion euros) was 15 % better than forecast. However, Tencent is forced to reduce its interests in many other Internet companies, including e-commerce giant JD.com. The Chinese retail and technology market has in fact been an oligopoly for years, with Tencent and Alibaba almost completely dominating the market. Anyone who wants to stand a chance in the country has to join the enormous ecosystem of one of the two players. Tencent has stakes in hundreds of other internet and tech companies.

Today, however, the Chinese government is trying to open up this market by imposing fines and restrictions on the technology giants. For example, it is striking that Tencent, China’s largest gaming platform, has not yet received approval for any new computer games this year, Bloomberg reports. The company is now focusing more on international games, the future metaverse, cloud software and TikTok competitor WeChat video.

The Chinese tech giants are also entering a new phase of maturity: they are now improving their profitability and margins, rather than continuing to go for unbridled growth and market conquest. This is necessary now that their stock market valuation has plummeted to unprecedented lows.