By LU Keyan
Tencent made 30 percent of its profits from gaming in Q4 last year, according to its fiscal report. This state of affairs, combined with profit growth of only 1 percent last year, has shaken a fragile market. Citibank adjusted its target price from HK$634 to HK$562. Other banks have even lessconfidence.
Domestic games grew only 6 percent in 2021, mainly due to strict limits on the activities of minors and a freeze on new games. International games, on the other hand, did exceptionally well, growing 31 percent.
But the jewel on Tencent’s slightly tilted and tarnished crown, remains fintech and business services, provided a third of Tencent’s swag and has grown at a 33 percent a year for three years, much faster than the rest of Tencent. Fintech has two components: mobile payments and asset management. Some estimates put mobile payment’s contribution at over 80 percent. James Mitchell, Tencent’s Chief Strategy Officer, puts the growth in Fintech down to commercial payments, the result of more merchant signups and more mini-program transactions. Commercial payments might have done even better “were not for the pandemic,” but many other things would have too.
Asset management is highly profitable, with gross profit expected to grow by over 40 percent in each of the next three years. Fintech is very close to heart of the tech giant but regulators are circling, multiple media have reported that the authorities are considering split WeChat Pay from WeChat and put it under supervision of a new finance company. President Martin Lau has muttered that such a change might be positive for both the industry and the two companies, and he might be right.
Business services consists mainly of Tencent Cloud, which, due to its relatively small base, is among the fastest growing sectors in the company. It is estimated to have drawn in 15.5 billion yuan in Q4, a big leap from the year before. But Tencent Cloud is the second largest cloud service in China, and it makes a loss. The industry prioritizes growth over profits – or used to. Tencent Cloud was no exception and is determined to reverse its course.
The company has sunk a lot of money in unprofitable deals simply for increased revenue. Tencent Cloud plans to steer clients from low-profit products to high-profit ones, but Cloud & Smart Industries Business Group (CSIG), to which Tencent belongs, is reportedly to shed 20 percent of its workforce to cut costs.
Advertising revenue declined 4 percent in Q4, partly due to data privacy rules, limits on ads frequency and restrictions on ads for children and old people. A more important reason is that many big advertisers were themselves hit by crackdowns. Tutoring schools, which contributed up to 15 percent of ad income, now only accounts for less than 3 percent.
