Ultimate magazine theme for WordPress.

Tencent: investors should clock threat from China’s TikTok

0 10

Tencent missed third-quarter sales expectations on Wednesday. Revenues grew at the slowest pace since the Chinese internet giant went public in 2004. ByteDance, owner of short video platform TikTok, has become a bigger risk than Beijing crackdowns.

A 13 per cent revenue increase to Rmb142bn ($22.2bn) marked the sixth straight quarter of slowing growth. Crucially, online advertising sales grew by only 5 per cent. Local marketing spending is falling. Tencent has to share fewer ads with smaller rivals who are increasing their market share.

The shift makes sense for advertisers. Tencent’s biggest edge has been the number of eyeballs on its social media platform WeChat. This has approximately 1bn users, but is losing its shine. Users are spending more and more time on platforms such as Douyin, the Chinese equivalent of TikTok, both of which are run by ByteDance.

Local trends favour video-based content. Tencent’s music streaming unit has also been hit, with paying users down in the third quarter, compared with both the previous year and quarter. Catching up will be costly. There are other constraints: aggressive measures to gain back market share from smaller rivals risk attracting fresh antitrust scrutiny.

The company’s net margin fell 4 percentage points to 23 per cent. Net income of Rmb40bn was stronger than expected. But this had more to do with gains from investment disposals than a rebound by the core businesses.

Tencent has adapted swiftly to government curbs on gaming time and online spending by children. Gross receipts from Chinese kids have fallen sharply to less than a quarter of last year’s total. But the limits have reduced regulatory uncertainty.

Investors should not rely too much on the company’s gaming business, which accounted for almost a third of total revenues last year. It remains just one official criticism away from another sharp decline.

The effect of that regulatory risk has been priced in for now. Shares have since recovered and are up 15 per cent from an August low. Tencent’s future course now depends more critically on the online preferences of young people than government disapproval.

Leave A Reply

Your email address will not be published.