Tencent has published its Q1 2022 report showing a significant loss of profit, and its worst since the company went public.
Tencent (HKG: 0700) released its Q1 2022 financial report that showed a 50% decline in profit year-on-year (YoY) as well as zero revenue growth. The Chinese multinational tech and entertainment giant reported first-quarter revenue of 135.5 billion yuan versus 135.3 billion yuan YoY. This figure fell below the consensus estimate of 41 billion yuan, according to Refinitiv. Furthermore, Tencent reported that its net earnings plummeted 51% YoY to 23.41 billion yuan. The current report is the tech giant’s worst since going public. Surveyed analysts expected around 28.5 billion yuan for the same period.
As it stands, Tencent’s overall market cap sits at $451 billion, a more than 50% deficit from its $930 billion peak back in February 2021. Despite the setback, Tencent remains China’s most valuable company.
Tencent’s Q1 2022 earnings report comes after a sweeping government crackdown, and economic issues impacted the its growth. In addition, the company also ascribed its subpar performance to a substantial decline in consumer, e-commerce, and travel business spending on advertising. According to Tencent, online advertising plunged 18% in the period ended March 31st to 18 billion yuan. Meanwhile, in the second quarter, the Shenzhen-based company also stated that “overall advertising sentiment remained weak.”
American depositary receipts of Tencent remained inactive during the premarket trading session on Wednesday. In addition, company stock dipped 0.8% in Hong Kong.
Tencent Outlook Following Q1 2022 Report
Speaking on the weak performance, Tencent chairman and chief executive Ma Huateng attempted to provide some behind-the-scenes exposition. Furthermore, Huateng also suggested that the measures Tencent takes during trying times would significantly affect its future. In a statement, the CEO of the multinational tech and entertainment conglomerate and holding company said:
“During the challenging first quarter of 2022, we implemented cost control initiatives and rationalized certain non-core businesses, which would enable us to achieve a more optimized cost structure going forward.”
Part of Tencent’s operational opportunities that were clipped during Beijing’s regulatory crackdown on its tech sector included new gaming licenses. The leading tech firm makes a lot of money from games like ‘Honor of Kings’ and ‘Call of Duty Mobile’. Although the 8-month ban on new gaming licenses was lifted in April, Tencent did not produce any licenses then. Furthermore, Beijing is yet to issue a new batch of game licenses for May.
Weighing in on Tencent’s performance outlook for the rest of the year, Marvin Chen and Sufianti Sufianti of Bloomberg Intelligence, said:
“2022 could mark Tencent’s second straight year of low single-digit EPS gains, putting its status as a China growth stock into question.”
However, the duo also suggested that Tencent’s immediate future may dramatically improve considering certain factors.
“Yet, the second half and 2023 may yet draw flames from Tencent’s glowing growth embers, particularly if consumer demand stabilizes, regulatory tightening eases, and gaming approvals resume,” explained they.