The Chinese video game giant, Tencent, had already experienced its worst financial results in the fourth quarter of 2021. For the start of 2022, the fall in results for the entertainment juggernaut continues according to its latest financial report (pdf) published May 18. The company posted its worst profit since its IPO in 2004, when Beijing announced that it wanted to lift certain constraints that weigh on tech, including the video game sector.
The worst financial result since Tencent went public in 2004
Tencent has faced many difficulties since Beijing decided to tackle the consumption of video games among young people. The company, which specializes in publishing online games, has been hit hard by the limitation of playing time among minors wanted by the Chinese authorities. For nine months, the government had also halted the release of new games on its territory, before backpedaling in April. The effects of this repressive policy have impacted the entire sector during 2021.
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Effects that are still being felt in 2022, when Tencent’s first quarter net profit plummeted 51% from the previous year to $3.5 billion. This is the Chinese firm’s worst financial result since its listing on the Hong Kong stock exchange in 2004.
The overall turnover remains stable with a derisory growth of 0.1% compared to 2021, or 21.3 billion dollars. Video game revenues meanwhile fell 1% as the company owns popular franchises around the world like League of Legends Where Valorant.
Beijing has announced that it wants to relax the repression on Chinese digital technology, a policy which should contribute to its zero-covid objective. Tencent executives welcome the news, but say it will take some time before the effects are felt on the company’s bottom line. Especially since the health situation remains uncertain and has particularly affected Shanghai, where Tencent’s offices are located.
Fierce competition in several sectors
China is engaged in a fight against video games, while this sector will generate 50 billion dollars in revenue in the territory in 2022 according to estimates. With the resumption of the approval of new games by the government, it will still be very attentive to the risks they can represent for young people.
This pushes Tencent to review its strategy. Tencent Chief Strategy Officer James Mitchell explained that the company will focus on quality over quantity. There will therefore be fewer games but they will have larger budgets.
The company’s online advertising revenues are also down. They have been largely impacted by the restrictive health policy of Chinese power, falling 18% since 2021, for a turnover of 2.7 billion dollars. ByteDance, TikTok’s parent company, has devoured much of Tencent’s ad market share.
Competition is also fierce in the streaming industry. Tencent will close its live streaming platform, Penguin Esports, in June, which is no match for the American ogre Twitch. The same is true for its on-demand movies and series service, Tencent Video, which has just increased the price of its subscription for the second time in a year. Popular chat app WeChat, meanwhile, saw a 3.8% increase in user numbers, to a total of 1.28 billion users.
Tencent is counting on the collaboration of the government to recover from this difficult period. China is aware of the importance of this entertainment giant, which is an asset for its soft power and its economic activity.