(Bloomberg) – Tencent Holdings Ltd. downplayed the impact of Beijing’s growing scrutiny on China’s largest internet companies, saying that a possible overhaul of its $ 120 billion fintech wing would have little impact on its business. Its shares fell more in two months.
President Martin Lau acknowledged that founder Pony Ma recently called on regulators, but said he was a volunteer and part of a series of regular meetings. Executives reiterated that the company has always been cautious and obedient to fintech regulations and that it will maintain its normal practice of acquiring minority stakes in Chinese startups, while regulators look at past deals.
Beijing is broadening its crackdown on the country’s largest corporations, fearful of its growing influence after years of relatively unrestricted expansion. Regulators are considering forcing the company to overhaul its promising fintech division in a similar way to Jack Ma’s Ant Group Co.. This month, President Xi Jinping has warned that he will go after “platform” companies that accumulate data and market power. , a sign the Internet crackdown is not limited to Ant and its sponsor Alibaba Group Holding Ltd.
Tencent’s shares fell more than 5.6% in Hong Kong on Thursday, its biggest intraday drop in two months, worsening the $ 180 billion sale in Asia’s biggest company since the peak of January. Technology stocks also plummeted after a US defeat, as regulators resuscitated threats to pull China’s largest corporations off US stock exchanges.
Read more: China Tech Giants plunge when threat of exclusion joins fears of repression
“It was revealing that several questions on Tencent’s quarterly conference call were directed at regulatory risks, and it is difficult to argue against the idea that this could remain a burden on Tencent’s share price performance,” wrote Bernstein analyst Robin Zhu in a research note. But the fourth quarter figures “serve as a reminder that the business continues in a very robust way”.
Lau acknowledged that companies like Tencent draw a fine line between public duty and the profit motive as they grow, but the “boring response” was to stay in compliance and stay in touch with the government. Asked whether Tencent’s main gaming and entertainment businesses could attract the attention of antitrust regulators, executives pointed to the large number of competitors. This was in contrast to a quarter ago, when they emphasized that the new antitrust rules focused more on transaction-based platforms than on Tencent’s entertainment business.
“We have always been very focused on compliance and will continue to operate strictly in accordance with the rules and regulations,” Lau told reporters in a conference call. Any requirements to form a financial holding company will have no impact on its business, he added. “Compliance is our salvation.”
Read more: Tencent avoids impact of restructuring in financial holding
Tencent’s attempt to allay investors’ concerns about regulatory scrutiny comes after it reported revenue growth that barely met expectations.
On Wednesday, senior executives repeatedly emphasized that they will do anything to comply with regulations. Tencent, which has acquired stakes in hundreds of startups over the years, is reviewing past investments to ensure they meet antitrust requirements. The WeChat operator – used by more than a billion people – has again committed to protecting user privacy, while recognizing the need to respond to Beijing’s call to share data on everything from research to e-commerce.
Led by the People’s Bank of China, the government has proposed establishing a joint venture with technology giants that would oversee the lucrative data they collect, which would mark a significant escalation in regulators’ attempts to tighten control of the sector, Bloomberg News reported on Wednesday. -market. .
“Tencent is trying to reassure investors that its microcredit business has substantial differences from Ant,” said Michael Norris, research manager at Shanghai-based consultancy AgencyChina. “While Tencent can avoid the same level of scrutiny as Ant Group, there may be some bumps along the way. Potential problems may include scrutiny of data collection or regulatory attention to the promotion and cross-selling of financial products, ”he added.
Read more: It is said that China will consider the state-owned company to oversee the technology data
Sales increased 26% to 133.7 billion yuan ($ 20.5 billion) in the three months ending in December, against an average forecast of 133.1 billion yuan. Net profit was 59.3 billion yuan, with one-off gains contributing more than half of the profit. This compares with the projected 32.9 billion yuan.
It is unclear how far Beijing intends to go in its attempt to control Tencent and its peers. In the short term, investors are likely to focus more on how the world’s largest gaming publisher could sustain a pandemic-induced entertainment explosion, while delving into new businesses such as advertising and payments. Online gaming revenue grew 29% in the fourth quarter – the slowest pace in about a year – despite increased sales of titles like Peacekeeper Elite and the recently launched Moonlight Blade Mobile.
They all rely on WeChat, the way in which Tencent reaches users and markets products, including its biggest game hits like Honor of Kings and PUBG Mobile. Through the mini-program model it advocated, WeChat hosted $ 240 billion in transactions for 400 million daily users last year. Now it is relying on a new short video within the multifunctional platform to ward off ByteDance Ltd., which has attracted eyes for TikTok’s Chinese cousin, Douyin.
Tencent’s earnings engine could withstand scrutiny: Tim Culpan
Social media sales increased by 27%, partly after Tencent consolidated Huya Inc.’s contributions Online advertising revenues increased by 22%.
Fintech and companies – the division that oversees Tencent’s various financial operations, as well as the cloud – increased revenue by 29% thanks to payment and wealth management services. But concerns remain about whether the company will be able to maintain that pace.
China’s largest company faces more scrutiny of its fintech operations as regulators tighten the oversight of an incipient, but expanding, industry that may pose systemic risks. As one of the largest operators in the industry, Tencent’s businesses face the same stringent measures that have affected Ant’s dizzying growth.
The proposed rules to break the market’s concentration on digital payments and control online consumer loans will hurt the prospects for Tencent’s WeChat Pay and its broader fintech businesses. Bloomberg reported this month that regulators are considering asking the company to turn its fintech operations into a holding company that could be regulated more like a bank.
What Bloomberg Intelligence says
Tencent’s fintech focus on risk management at the expense of scale threatens to crush its growth gears as the company tiptoes through a fast-paced regulatory landscape fraught with potential dangers.
– Vey-Sern Ling and Tiffany Tam, analysts
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Read more: Tencent said it will face widespread crackdown on Fintech in China, business
(Updates with analyst comments in the fifth paragraph)
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