Tencent joins Alibaba in spending spree as competitors grows
Tencent Holdings pledged to ramp up investments sharply this year after quarterly sales rose 25 percent, and joined its biggest competitors in a spending spurt that will increase competition in China’s post-pandemic internet arena.
China’s largest tech companies are trying to lure users into the fast-growing areas of online commerce and video. Tencent plans to put a larger portion of its additional profits into cloud services, games and video content this year, and to work with Alibaba Group and Meituan to telegraph strong investment increases.
Tencent is trying to maintain sales growth, which rose to 135.3 billion Chinese yuan ($ 21 billion) in the three months to March. In Hong Kong, however, its stocks fell more than 3 percent on concerns about margin erosion, prompting broker CICC to cut its earnings estimate.
The increased spending is due to Tencent facing competition from ByteDance and increased control by Beijing. Pony Ma’s company has largely escaped antitrust crackdown for the time being – despite its ubiquitous WeChat app, which offers unparalleled insights into all aspects of Chinese life and a leading edge in gaming, music, and social media markets.
But its FinTech arm, along with those of other giants like Didi and Meituan, faces far-reaching restrictions similar to those of Jack Ma’s Ant Group.
Net income for the March quarter was 47.8 billion yuan, up from 19.5 billion yuan gain on the value of investments and divestments. Without these gains, adjusted net income was 33.1 billion yuan, slightly below estimates.
Right now, games and social content remain Tencent’s largest and most consistent cash generators. Online game revenue increased 17 percent for the quarter.
In an effort to address investor concerns, executives reiterated that Tencent remained heavily focused on risk management and remained “cautious” about the size of its non-paid financial products.
“If we look at the internal review and if we look at what other things need to be done to make sure we are in line with the spirit of regulators, it is actually relatively manageable,” Martin Lau, president of Tencent, told analysts one Telephone conference.
The company also reiterated previously announced plans to invest 50 billion yuan in its so-called Social Values Initiative, which it will use to fund philanthropic efforts in areas such as education, rural revitalization and carbon neutrality – areas that are firmly in line with priorities of Chinese President Xi Jinping match.
The decision to drive investment is largely based on expanding market opportunities in business services, online games and short videos.
There is also competitive pressures from peers in the industry who spend aggressively. While short-term costs will increase, the timing of the return on these investments can be unpredictable.
The Chinese giant had lost around $ 200 billion in market value since its peak in January. This was part of a wider tech sell-off, with investors weighing the potential impact of the online juggernaut. FinTech aside, competitors have long argued that WeChat – which is now diving into short videos and e-commerce – locks users into its ecosystem by blocking links to external services.