Resilient Tencent set to offset game slowdown with e-payment revival


NEW YORK — Tencent Holdings is finding that its diversification push over the years is bearing fruit, as multiple channels of revenue give it stability amid turbulence that others can only envy.

The tech giant, one of China’s most valuable, recorded a 26% year-on-year revenue jump during the January-March period, outpacing growth in both the previous quarter and the same period in 2019.

“So far, our businesses have proved resilient and cash flow-generative,” Chairman and CEO Pony Ma Huateng said in a press release.

“During this difficult period, we seek to provide online services that keep people connected, informed, productive, and entertained,” he said. 

Much of the better-than-expected results came from increased demand for gaming as Chinese consumers hunkered down during the new coronavirus lockdown.

But Tencent expects the segment to normalize in the second quarter as users have largely returned to work in China after the virus outbreak was brought under control.

“The boost in the gaming revenue is very short-lived,” said Vey-Sern Ling, an internet analyst with Bloomberg Intelligence.

Tencent will be watching carefully the revival of its fintech and business services, the company’s second-largest source of revenue after gaming and content, which took a hit from China’s substantial shutdown.

The company operates superapp WeChat, whose wallet function has become many consumers’ go-to even in offline settings including dining, brick-and-mortar shopping and public transportation.

As these activities became inaccessible during Chinese New Year, a period traditionally associated with larger consumption, Tencent’s electronic payment volume also dropped significantly.

Withdrawal services, which generate commission fees for Tencent, were also down as people needed less cash while staying at home.

Meanwhile, China’s reopening at a time when the rest of the world is still grappling with coronavirus outbreaks is bad news for the company’s advertising business.

Tencent’s online advertising segment grew 33% in the first quarter, facilitated by increased traffic. But it warned a slowdown is likely to follow, with users cutting back time spent online and “multinational brands reducing their spending significantly as they face the pandemic in their home markets,” Chief Strategy Officer James Mitchell said on its Wednesday earnings call.

“What we’ve seen in the last few weeks is that the half of the revenue that comes from local China-based companies has been fairly resilient, but the the half of the revenue of long-form video that comes from multinationals has experienced a substantial step-down,” Mitchell said, after pointing out that international brands account for about half of the tech industry’s ad sales.

Cloud computing, another fast-growing sector for Tencent, has also seen a slowdown amid the outbreak as engineers stranded at home could not help clients deploy projects as planned.

Additional reporting by Coco Liu in Hong Kong.





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