Tencent to maintain cost-cutting measures despite first drop in annual revenue

Tencent Holdings said on Thursday it would focus on its core business, while maintaining cost-cutting and efficiency improvements, as it announced its first annual revenue drop to date.

The world’s largest video game company and messaging platform operator WeChat recorded 554.55 billion yuan (nearly Rs. 6,65,600 crore) revenue for 2022, down 1 % from a year earlier, after China’s pandemic-driven economic slowdown and a long-running regulatory clampdown weighed on earnings.

Tencent Chairman and CEO Pony Ma told reporters on a call that the company would focus this year on optimizing existing core businesses, rather than “trying to do everything” and “marketing”. of the red ocean”, where the competition is intense.

“We hope that our entire business management team and our technology will be more focused,” he said. “I think that’s very important because we can see that focusing and achieving breakthroughs is key to overall development.”

The business outlook is uncertain in the world’s largest gaming market after two years of regulatory repression, but industry players are hoping for a recovery as regulators have resumed granting publication licenses since late last year after a freezing for several months.

Unlike most other countries, video games must be approved by regulators before being released in China.

The crackdown has changed the operating environment for Chinese tech giants, as regulators have tightened scrutiny over monopolistic behavior and the companies’ handling of user information.

Martin Lau, chairman of the company, said in a subsequent call with analysts that regulations are being normalized and support for platform companies is expected to improve this year.

“(Chinese President Xi Jinping recently) mentioned supporting platform companies to show competence, create jobs, boost consumption and international competition,” he said. “The prime minister also pointed out that the private sector would have great potential in the Chinese economy.”

Advertising activity resumes

Helping to offset losses in domestic games and fintech, Tencent’s online advertising business showed a surprisingly strong recovery in the fourth quarter, with revenue for the segment up 15% and contributing to a 1% increase. % of overall group revenue for the quarter ended. December.

Chinese city shutdowns intensified in the weeks leading up to early December when the country abruptly ended its zero COVID policy, triggering a wave of infections, which severely disrupted the economy and caused many deaths.

Charlie Chai, analyst at 86Research, said Tencent’s overall performance was “tepid”, but the advertising segment “ignored the challenge of COVID-19 and saw growth outpacing the industry.” “.

During the media call, Lau also spoke about the company’s forays into generative artificial intelligence, which has seen renewed global interest, spurred by the popularity of Microsoft-backed startup OpenAI’s Chatbot ChatGPT. .

Reuters reported last month that Tencent was working on a ChatGPT-like chatbot named “HunyuanAide” that will integrate Tencent’s Hunyuan AI model.

Lau said the company is rapidly advancing its proprietary Hunyuan core model and plans to gradually roll out its own AI core models.

Tencent Chief Strategy Officer James Mitchell said Tencent is ready to bear the significant costs associated with training AI models, even as it focuses on cutting costs in other areas.

In October, the United States announced export controls on high-end computer chips to China in an attempt to contain AI development in the country, but Mitchell said Tencent had enough chips ready. to develop its AI models.

© Thomson Reuters 2023