Even as Beijing tightens its grip on the tech sector, Tencent is raking in more cash and plans to invest more in games and videos.
When compared to the same quarter last year, revenue for the Chinese gaming and social media behemoth increased by 25% to 135.3 billion yuan (approximately $21 billion).
Lower interest rates and growth in its booming gaming business helped profit jump 65 per cent to 47.8 billion yuan ($7.4 billion), beating analysts’ expectations.
On Thursday, the company said it would increase its investments in “new opportunities,” such as game development and short-form video content.
According to Hao Hong, head of research at BOCOM International, the securities arm of China’s Bank of Communications, this has likely turned off some investors. Tencent’s (TCEHY) stock fell as much as 4% in Hong Kong on Friday.
“People are basically looking for excuses to cash out their stake in the company,” said Hong.
“There’s always risk associated with new investments, so some people may want to take money off the table.”
Investors may also be concerned that the company will be subjected to the same level of scrutiny that has already engulfed some of the country’s biggest names, such as Alibaba (BABA). Tencent’s stock has increased by 4% since the beginning of the year, but it has dropped by 23% since its peak in late January, as the Chinese government has stepped up its crackdown. However, Hong believes that regulatory concerns are exaggerated.
Alibaba, once regarded as one of China’s biggest success stories, has now become a cautionary tale. Last month, it was fined a record $2.8 billion for acting like a monopoly.
That came after Ant Group, Alibaba’s financial technology subsidiary was forced to postpone a record-breaking $37 billion IPO last year after Ma got into trouble with regulators. Ant was later ordered to completely overhaul its operations and become a central bank-supervised financial holding company.
Tencent has remained in the crosshairs since then, fraying the nerves of investors.
Ma Huateng, also known as Pony Ma, the company’s CEO, met with Chinese antitrust officials in March. Tencent stressed in a statement at the time that the gathering was a “voluntary” and “regular meeting,” despite the fact that the company’s stock had fallen that day. Regulators have continued to tighten practices for dozens of tech companies in recent weeks.
In April, for example, executives from 34 tech companies, including Tencent, were summoned to meet with authorities, who urged them to heed the Alibaba case’s warning and refrain from anti-competitive behaviour.
Tencent was also one of the 13 companies ordered by Chinese regulators to address their financial units’ “most serious problems” in the same month. (In addition to owning WeChat, the popular messaging app, Tencent is known for its dominance in online payments in China, thanks to its WeChat Pay platform, which has hundreds of millions of users.)
Tencent’s stock fell once more as a result of the move, which signalled Beijing’s determination to broaden the scope of its historic crackdown.
In a conference call with analysts on Thursday, Tencent President Martin Lau addressed the issue, emphasizing that the company was “very focused on compliance.”
“We’re very focused on risk management. We’re very self-restrained in terms of the size of [some of] our … financial products, especially on the lending side,” he added.
“So when we look into the internal review and when we look into what are the things that need to be done to make sure that we are compliant with the spirit of the regulators, right, I think it’s relatively manageable.”
Tencent Music (TME), the company’s US-listed music streaming subsidiary, said this week that Chinese regulators have been paying more attention to it.
On an earnings call, Chief Strategy Officer Tony Yip said, “In recent months, we have received increased regulatory scrutiny from relevant authorities and have been actively cooperating and communicating with the relevant regulators.”
“We are committed to following all applicable laws and regulations, including antitrust laws and regulations.”