Tencent Q1 net slides 23pc amid clamp and slowdown

Tencent's (0700) adjusted net profit slid 23 percent year-on-year to 25.5 billion yuan (HK$29.7 billion) in the first quarter after a sweeping government crackdown and Chinese economic malaise wiped out growth at the internet behemoth.

The adjusted profit - excluding share-based compensation, net change from investee companies, impairment provisions, the Common Prosperity program, income tax effects, and others - is used to assess the performance of its core operations.

Net income also slumped 51 percent to 23.4 billion yuan, lagging estimates despite a big gain from the sale of stock in Singapore's Sea.

Sales barely rose to 135.5 billion yuan for the three months ended March, missing the average forecast, after online ad revenue plummeted 18 percent. Overall growth decelerated for a seventh straight quarter, to the slowest pace since the Shenzhen company went public in 2004.

The abrupt halt in revenue growth follows two previous quarters of softening sales. Tencent has seen its expansion opportunities clipped by a regulatory crackdown by Beijing to rein the influence of the country's largest internet firms.

"2022 could mark Tencent's second straight year of low single-digit earnings per share gains, putting its status as a China growth stock into question. Yet, the second half of this year and 2023 may yet draw flames from Tencent's glowing growth embers, particularly if consumer demand stabilizes, regulatory tightening eases, and gaming approvals resume," said Marvin Chen and Sufianti Sufianti, analysts at Bloomberg Intelligence.

Domestic game revenue dropped 1 percent to 33 billion yuan while its international game revenue saw a 4 percent rise to 10.6 billion yuan.

The tech giant's fintech and cloud division has become its No 1 revenue driver. But its 10 percent growth was also worse than expected after Covid lockdowns in cities like Shanghai and Shenzhen delayed cloud projects and cooled transactions.

Founder Pony Ma Huateng wrote in Tencent's social value report published this week that "our revenue and profit growth has slowed down; on the other hand, we can use it as a chance to shift gear toward higher-quality development," and calling it the "difficult but right thing" to do.

Tencent's depositary receipts in Frankfurt fell 2 percent after the results as of 8 pm last night, while its shares in Hong Kong shed 0.8 percent before the earnings release.