The Chinese gaming and social media giant said on Thursday that revenue jumped 25% to 135.3 billion yuan (about $ 21 billion) for the quarter ended in March compared to the same period last year. .

Profit climbed 65% to 47.8 billion yuan ($ 7.4 billion), better than analysts had expected, helped by lower interest rates and growth in its gaming business in booming.

The company also announced Thursday that it will step up its investments in “new opportunities”, such as game development and short video content.
This has likely discouraged some investors, according to Hao Hong, head of research at BOCOM International, the securities arm of the China Bank of Communications. Tencent (TCEHY) shares slipped as much as 4% in Hong Kong on Friday.

“People are basically looking for excuses to withdraw their stake in the business,” Hong said. “There is always a risk associated with new investments, so some people may want to take money off the table.”

Investors may also be concerned that the company may face the kind of rigorous oversight that has already engulfed some of the country’s major players, including Ali Baba (BABA).
Tencent shares are up 4% from the start of this year, but are down about 23% from a high in late January, as the Chinese government stepped up its crackdown. Hong, however, said regulatory fears could be overblown.
Once considered one of China’s greatest success stories, Jack Ma’s Alibaba has now grown into an uplifting tale. It was fined a record $ 2.8 billion last month for acting like a monopoly.
It came after Alibaba’s fintech affiliate Ant Group was forced to suspend a record-breaking $ 37 billion IPO last year, when Ma landed in hot water with the regulators. Ant was also ordered to radically overhaul its operations and become a central bank supervised financial holding company.

Since then, Tencent has been continually caught in the crosshairs, unraveling the nerves of investors.

Regulatory concerns

In March, CEO Ma Huateng, also known as Pony Ma, met with Chinese competition officials. Tencent said in a statement at the time that the rally was a “voluntary” and “regular” meeting, although shares slipped that day.

In recent weeks, regulators have continued to tighten the practices of dozens of tech companies.

In April, for example, executives from 34 tech companies, including Tencent, were called in to meet with authorities, who urged them to heed the warning in the Alibaba affair and end anti-competitive behavior.
This the same month, Tencent was also one of 13 companies that Chinese regulators ordered to solve the “most important problems” of their financial units. (Besides being owned by WeChat, the ubiquitous messaging app, Tencent is known for its dominance of online payments in the country through its WeChat Pay platform, which has hundreds of millions of users.)
China orders Tencent, other big tech companies to curb fundraising activities
The move, which signaled Beijing’s determination to broaden the scope of its historic crackdown, once again lowered Tencent’s shares at the time.

Tencent chairman Martin Lau addressed the issue on an analyst call Thursday, noting that the company was “very focused on compliance.”

“We are very focused on risk management. We are very sober about the size of the [some of] our … financial products, especially on the loan side, ”he added.

“So when we look at the internal review and look at things to do to make sure we’re in line with the minds of the regulators, okay, I think that’s actually relatively manageable.”

Pedestrians walk past a Tencent sign at the company's headquarters in Shenzhen in March.
This week, Tencent Music (TME), the music streaming subsidiary of the listed company in the United States, also said it had attracted more attention Chinese regulators.

“In recent months, we have been subject to increased regulatory scrutiny by competent authorities and have actively cooperated and communicated with relevant regulators,” Chief Strategy Officer Tony Yip said in a statement. call for results.

“We are committed to complying with all relevant laws and regulations, including those related to antitrust law.”

Growth of video games

With the recent results, analysts have been particularly impressed with Tencent’s gaming business, which has grown at an extraordinary rate in 2020 and continues to show impressive growth.

Many video game publishers boomed during the pandemic, with more people staying at home, and Tencent’s contribution from that division in the last quarter likely nearly matched what it brought “last year. during Covid, “noted Bernstein analyst Robin Zhu.
Tencent is the world’s largest games company, best known for its popular mobile game, PlayerUnknown’s Battlegrounds (PUBG).

The company said revenue from its gaming business increased 17% to 43.6 billion yuan ($ 6.8 billion) from January to March, “mainly due to the growth in revenue from our mobile games. worldwide, including Honor of Kings, PUBG Mobile, and Peacekeeper Elite, as well as recently launched titles such as Moonlight Blade Mobile. “

Overall, Zhu said, “we would say it was a solid package of results.”