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Tencent Posts Steepest Profit Decline Since Going Public


Tencent Holdings Ltd.

TCEHY -4.62%

posted its worst-ever quarterly profit drop and slowest revenue growth in nearly two decades, as China’s pandemic resurgence hit a technology giant already struggling with a yearlong regulatory crackdown.

The social-media and videogame behemoth said Wednesday that first-quarter revenue rose 0.1% from a year earlier to 135.47 billion yuan, or $21.3 billion, based on an exchange rate of 6.3482 yuan to a dollar that Tencent used. Net profit fell 51% to 23.41 billion yuan, the world’s largest videogame developer said. That was Tencent’s biggest profit decline since listing in Hong Kong in 2004, data from S&P Global Market Intelligence showed.

Both measures missed expectations of analysts polled by FactSet and marked a further deterioration from the final quarter of 2021, when several Chinese tech companies including Tencent and Alibaba Group Holding Ltd. posted their worst top-line growth since going public.

The slowdown was primarily due to a 1% revenue decline from Tencent’s domestic games business, one of the company’s largest income streams. Tencent attributed the drop to “direct and indirect effects” of youth protection measures unveiled last year that hurt active-user and paying-user counts.

Chinese authorities have reined in the gaming industry with measures such as limiting online gaming time for youths. Beijing also suspended new videogame approvals for months before resuming granting licenses in April.

Revenue from online advertising, another key business segment, fell 18% in the first quarter. China’s wide-ranging regulatory actions and slowing economy have weighed on demand from advertisers across industries.

Tencent said “overall advertising sentiment remained weak” so far in the second quarter, with advertisers in categories such as fast-moving consumer goods, e-commerce and travel significantly reducing spending. Tencent described the situation as a “difficult market environment.”

China’s Tencent is backing the developers of blockbuster videogames such as “Pokémon Unite” and “League of Legends.” But Beijing’s crackdown on the industry at home, including when minors can play online games, could affect the company’s global videogame empire. Photo composite: Sharon Shi

Sharply higher costs, including a 41% jump in general and administrative expenses, further hit Tencent’s bottom line. The company said the cost increase was “due to higher share-based compensation expenses, R&D expenses and staff costs” from new investments and overseas subsidiaries.

Tencent’s first-quarter results came amid rising investor concerns about China’s internet sector. Although Beijing has recently signaled a pause in its tech crackdown, the country’s latest Covid-19 outbreaks have led to mounting economic pains and slowing consumption, both of which could cripple Tencent’s businesses.

The company also faces a potential record fine for violations of some central bank regulations by its digital-payment operations, The Wall Street Journal reported earlier this year.

Tencent shares have dropped by more than a third over the past year.

Write to Yifan Wang at [email protected]

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