Tencent declares 'reckless' tech era over as growth tanks

HONG KONG • Tencent Holdings pledged to embrace China's new paradigm of stricter government supervision after reporting its slowest growth on record, declaring the end of an era that nurtured some of the world's largest and most profitable corporations.

Co-founder Pony Ma and president Martin Lau led executives in endorsing Beijing's year-long crackdown on big technology firms.

They pointed out that it mirrored a backlash against the enormous power of Internet giants globally and also said more regulation will lead to healthier growth in the long run.

Tencent joins Alibaba Group Holding and other rivals in recognising a new phase of cautious expansion, more than a year after the start of a bruising crackdown that eventually engulfed every Internet sphere, from e-commerce to online gaming and education.

Tencent followed Alibaba in reporting its slowest pace of quarterly growth on record as online advertising sales missed analysts' projections after declining for the first time. And domestic gaming revenue grew a mere 1 per cent - reflecting a months-long licensing halt that, along with curbs on playtime for minors, have sapped Tencent's biggest division.

"We are proactively embracing changes to better align ourselves with the new industry paradigm," Mr Lau said in a conference call after the results.

"We have a long-term oriented corporate culture that focuses on user value, social responsibility, technology innovations and compliance, the key elements for sustainable and healthy growth."

The company also waved aside speculation that it will embark on a share-buyback programme like what Alibaba announced this week, saying it will focus instead on core businesses such as international games, cloud services and its WeChat messaging service, developing new games for its pipeline when the regulatory environment stabilises later this year.

Tencent's stock slid more than 4 per cent in Hong Kong while Naspers, its biggest external shareholder, closed more than 9 per cent lower.

Tencent's revenue for the fourth quarter rose just 8 per cent to 144.2 billion yuan (S$31 billion) versus the 145.3 billion yuan average forecast - the first time that quarterly sales have grown by single digits.

Net income rose to 95 billion yuan, surpassing the 31.5 billion yuan projected, but only because of a big one-time gain.

Tencent has lost more than US$470 billion (S$638 billion) in market value from its peak last year, even though it has largely escaped Beijing's direct scrutiny.

The company has studiously endorsed the government's efforts, saying it is better in the long run to curb the excesses of the past that have led to disorderly competition in areas such as ride hailing, e-commerce and food delivery.

Alibaba and Meituan were two of the more prominent companies fined for monopolistic practices over the past year.

"For several years, industry participants have over-emphasised zero-sum competition, aggressive marketing, reckless expansion, short-term growth and corporate benefits, overlooking the most important elements of sustainable growth," Mr Lau said. "As a result, the industry's growth has become frothy and unhealthy."

Investors are recalibrating their approach to the market after Chinese President Xi Jinping and Vice-Premier Liu He pledged to support the economy and markets and end the clampdown on the technology sector "as soon as possible" - triggering a historic rally in Chinese stocks last week.

But for Tencent, several unresolved issues remain.

"Macro and regulatory headwinds aside, Tencent is having its own challenges," said Mr Shawn Yang, an analyst at Blue Lotus Capital Advisors. "It has yet to create its next gaming hits, and advertising sales were affected by ByteDance's (short-video platform) Douyin a lot."

BLOOMBERG