China’s tech giant, Tencent, reported its first-ever decline in quarterly revenue since it went public in 2004. For the April-June quarter of 2022, Tencent’s revenue dropped 3% YoY to CNY135.4 billion. The decline in revenue was the result of a record fall in online advertising sales, while its videogame business continued to struggle due to stringent regulations and reduction in spending by users.
China’s Sluggish Economy
The economic slump in China deeply affected the country’s tech industry, which was already facing troubles due to a regulatory crackdown. China’s economy reported its weakest growth in more than two years during the April–June quarter of 2022 owing to strict measures to control COVID-19 outbreaks, which shut down commercial activity in several cities. On August 15, 2022, China cuts its key interest rates as the country struggles to support the economy burdened by the COVID-19 lockdowns and a worsening slowdown in the real estate market.
Slowing Videogaming Segment
Tencent’s revenue from the videogame business fell 1% YoY in the quarter ended June 2022. The boom in the global videogame industry slowed down after a period of pandemic-driven growth. With inflation soaring, consumers became more frugal with their spending. The biggest videogame developer in China also faced challenges in the domestic market due to delay in the government’s clearance of new titles, including a policy that limits young people’s gameplay time.
In China, regulatory authorization is necessary for games to be able to charge players. The government licensing began in April 2022 following an eight-month freeze on approvals. Since then, neither Tencent nor its smaller rival, NetEase Inc., has been a part of the four batches of approved games.
Layoffs to Cut Costs
Tencent slashed 5,000 jobs or around 5% of its workforce in the quarter ended June 2022, the first quarterly decline since 2014. The company also stopped hiring for the first time in a decade as a means of cost reduction. Meanwhile, some of the other top tech companies, including Google, laid off a number of employees claiming economic slowdown and organizational restructuring. Another Chinese tech company, Alibaba, recently laid off nearly 10,000 employees as part of cost-cutting measures amid the slowing economy.
According to Tencent, the company exited some non-core businesses and cut back on costs, and it will continue to focus on enhancing business efficiency. The TikTok-style feed inside Tencent’s super-app is the latest attempt by the company to face competition from ByteDance Ltd., which is steadily pulling users away.
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