Tencent, one of China’s leading technology conglomerates, announced impressive financial results for the first quarter, with an 11% jump in quarterly revenue. This marks the company’s fastest growth in over a year, driven by significant rebounds in payment volumes, ad sales, and gaming.
In terms of revenue, Tencent generated 150 billion Chinese yuan ($21.4 billion), surpassing the Refinitiv consensus estimate of 146.09 billion yuan, representing an 11% year-on-year increase. However, the profit attributable to equity holders of the company stood at 25.8 billion yuan, falling short of the expected 31 billion yuan, demonstrating a 10% rise year-on-year.
These results indicate a strong recovery for Tencent after experiencing a series of negative and flat quarters. The company attributed its success to the solid revival of domestic consumption in China. As the country gradually eased its aggressive Covid-19 restrictions starting in December, Tencent benefited from this improved environment.
Tencent highlighted that net profit showed accelerated growth due to a positive revenue mix shift, operational efficiencies, and a favorable base period. Investors have been closely monitoring the reopening of China’s economy to gauge its potential impact on the country’s tech giants, including Tencent. With China’s economy growing at a rate of 4.5% in the first quarter, the fastest pace in a year, the outlook appears promising.
The Chinese tech industry has faced heightened scrutiny in recent times, as part of a broader regulatory tightening aimed at the domestic technology sector since late 2020. This regulatory landscape led to a significant decrease of over $1 trillion in combined market capitalization for China’s major companies. However, there are now indications that the central government is adopting a more lenient approach toward internet giants like Tencent, Alibaba, and Didi.
Earlier this year, Chinese regulators imposed a freeze on new video game releases, adversely impacting Tencent. Nevertheless, there has been a gradual easing of restrictions in the past few months, resulting in the approval of more titles for release. Amid a challenging domestic gaming market, Tencent has shifted its focus to international markets.
While Tencent remains a major owner and investor in tech businesses worldwide, it has been divesting some of its equity investments in response to Beijing’s concerns regarding the size of domestic tech companies.
Tencent’s robust performance in the first quarter demonstrates its resilience and ability to adapt to changing market conditions. The company’s growth trajectory is closely tied to the evolving regulatory landscape and the continued recovery of the Chinese economy.
