Chinese social and gaming giant Tencent reported surging revenue on Thursday, playing down the growing threat from domestic regulators that are increasingly signalling their intention to rein in Big Tech’s power.
This month, Beijing suspended fintech leader Ant Group’s $37bn initial public offering amid tightening regulations, while this week it unveiled a set of antitrust guidelines for the internet industry, marking its first major push to curb monopolistic practices in the sector.
However, Tencent’s president Martin Lau played down the potential impact of the regulations, suggesting they would hurt competitors in the ecommerce space more directly. “As technology companies become bigger and more important to the economy . . . more regulations reflect the new reality,” said Mr Lau. “We thrive on competition.”
The Shenzhen-based company reported total revenue growth of 29 per cent year-on-year to Rmb125bn ($18.9bn), ahead of analysts’ expectations, as its online gaming business continued to benefit from pandemic lockdowns. Domestic hits such as Peacekeeper Elite and Honor of Kings helped its online games sales grow 45 per cent year-on-year.
The company’s net profit, adjusted for certain one-off gains, for the third quarter rose 32 per cent to Rmb32bn.
Mr Lau said games, a big revenue driver for Tencent, were more akin to individual products rather than the platform businesses that regulators were targeting. “Our aspiration is not domination,” added chief strategy officer James Mitchell of its gaming business.
Of its own video-streaming platform, which grew to 120m users, Mr Lau said: “It’s actually a bit of a money-losing business right now so it probably doesn’t really fit into the focus of the regulator.”
Tencent also competes directly with Ant in mobile payments and online lending but executives said they believed the new draft online lending regulations that torpedoed Ant’s IPO would have less of an impact on it because most of its loans were extended by its WeBank affiliate.
The fintech unit, which includes business services, contributed 26 per cent of Tencent’s revenue in the quarter.
However, Tencent’s shares have fallen 7 per cent since the antitrust regulations were released on Tuesday and Alex Liu, an analyst at China Renaissance, said: “Investors will be relieved to hear executives directly talking about the regulations.
“While the regulatory framework is really comprehensive, there may be less impact for Tencent.”
Retail giant Pinduoduo, in which Tencent has a stake of 16.5 per cent, also reported rising revenues on Thursday. The Shanghai-based company posted 89 per cent year-on-year revenue growth to Rmb14.2bn and swung to a Rmb466m adjusted net profit for the quarter. Its New York-listed shares rose 22.5 per cent in early trading.
“They have proven they can be profitable on a quarterly basis, but the question is if they will be able to keep growing [gross merchandise volume] without the subsidies,” said Steven Zhu of the Pacific Epoch research firm.
Pinduoduo did spend less money, proportionally, on subsidising its goods during the quarter with sales and marketing expenses, which include the subsidies, amounting to 71 per cent of revenue, down from 92 per cent in the same quarter last year.
The company has complained that “existing players” — alluding to Alibaba — have used their dominance of China’s ecommerce market to pressure merchants away from selling with it.
But Alibaba’s command of China’s ecommerce space is also weakening as Pinduoduo picks up users through offering cheap goods. In the third quarter, its annual shopper count rose to 731m, close behind Alibaba’s 757m.