Tencent joins Alibaba in spending spree as competition grows
Tencent Holdings has pledged to sharply increase its investment this year after recording a 25% gain in quarterly revenue, joining its biggest rivals in a spending frenzy that will increase competition in the post-Internet arena. pandemic in China.
China’s biggest tech companies are trying to lure users into the fast-growing arenas of e-commerce and video. Tencent plans to invest a larger portion of its additional profits this year in cloud services, games and video content, joining Alibaba Group and Meituan to wire sharp increases in investment.
Tencent is trying to support the growth in its revenue, which climbed to 135.3 billion Chinese yuan ($ 21 billion) in the three months ended in March. But its shares slipped more than 3% in Hong Kong amid concerns about eroding margins, prompting brokerage firm CICC to lower its earnings estimates.
The spike in spending comes as Tencent faces competition from ByteDance and increasingly scrutiny from Beijing. Pony Ma’s company has largely escaped anti-trust crackdown for now – despite its ubiquitous WeChat app offering unparalleled insight into all aspects of Chinese life and a leading edge in the gaming, music markets. and social media.
But its FinTech branch, alongside those of other giants such as Didi and Meituan, faces broad restrictions similar to those imposed on Jack Ma’s group Ant.
Net profit amounted to 47.8 billion yuan in the March quarter, supported by 19.5 billion yuan of gains on the value of investments and disposals. Excluding these gains, adjusted net profit was 33.1 billion yuan, slightly below estimate.
For now, games and social content remain Tencent’s biggest and most stable cash generators. Online gaming revenue increased 17% in the quarter.
Executives sought to allay investor concerns, recalling that Tencent remains very focused on risk management and has been “self-restrained” on the size of its financial products without payment.
“When we look at the internal review and look at what else to do to make sure we’re in line with the minds of regulators, it’s actually relatively manageable,” Tencent Chairman Martin Lau said, to analysts. a conference call.
The company also reiterated its intention to invest 50 billion yuan in its so-called social values initiative, in which it will fund philanthropic efforts in areas such as education, rural revitalization and carbon neutrality – areas that correspond firmly to the priorities of Chinese President Xi Jinping. .
The decision to increase investment is mainly driven by the widening of market opportunities seen in business services, online games and short videos.
There are also competitive pressures from industry peers spending aggressively. As short-term costs increase, the timing of returns on these investments can be unpredictable.
The Chinese giant had lost around $ 200 billion in market value since its peak in January, as part of a broader sell-off of the technology that has prompted investors to weigh the potential fallout for the online juggernaut. Besides FinTech, competitors have long argued that WeChat – which now ventures into short videos and e-commerce – locks users into its ecosystem by blocking links to external services.