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(Bloomberg) – Tencent Holdings Ltd. downplayed the impact of Beijing’s heightened surveillance on China’s biggest internet companies, saying a potential overhaul of its $ 120 billion fintech wing should have little impact on its business. His shares sank the most in two months.
President Martin Lau acknowledged that founder Pony Ma recently called regulators, but said it was voluntary and part of a series of regular meetings. Executives reiterated that the company has always been cautious and compliant with fintech regulations and will stick to its normal practice of acquiring minority stakes in Chinese startups, while regulators review past deals.
Beijing is broadening its crackdown on the country’s biggest companies, fearing their growing influence after years of relatively free expansion. Regulators would consider forcing the company to overhaul its promising fintech division in the same way as Jack Ma’s Ant Group Co. Internet crackdown isn’t limited to Ant and its backer Alibaba Group Holding Ltd.
Tencent shares slipped more than 5.6% in Hong Kong on Thursday, their biggest intraday decline in two months, compounding a $ 180 billion sell-off at Asia’s largest company since its January high. Tech stocks also fell in the wake of a U.S. rout, as regulators rekindled threats to dismiss China’s largest companies from U.S. stock exchanges.
Read more: Chinese tech giants dive as threat of delisting joins fears of repression
“It was revealing that several questions on Tencent’s quarterly call focused on regulatory risk, and it’s hard to dispute the idea that this could remain an overhang for Tencent’s share price performance,” wrote Bernstein analyst Robin Zhu in a research note. But the figures for the fourth quarter “remind us that activity remains in very good health”.
Lau acknowledged that companies like Tencent walk a fine line between public duty and profit motivation as they grow, but the “boring answer” was to stay compliant and keep in touch with the government. When asked if Tencent’s core gaming and entertainment business could attract the attention of antitrust regulators, executives pointed to the sheer number of competitors. This was in contrast to a quarter ago, when they pointed out that the new antitrust rules focused more on transaction-based platforms than Tencent’s entertainment business.
“We have always been very focused on compliance and we will continue to operate in strict compliance with rules and regulations,” Lau told reporters on a conference call. Any requirement to create a financial holding company will not impact its activities, he added. “Compliance is our lifeline.”
Read more: Tencent Avoids Impact of Financial Holding Company Overhaul
Tencent’s attempt to allay investor concerns about regulatory oversight comes after posting revenue growth that barely lived up to expectations.
Senior executives have repeatedly stressed Wednesday that they will do everything possible to comply with the regulations. Tencent, which has acquired stakes in hundreds of startups over the years, reviews past investments to ensure they meet antitrust requirements. The operator of WeChat – used by more than a billion people – has once again made a commitment to protect user privacy while recognizing the need to answer Beijing’s call to share data on everything from research at e-commerce.
Led by the People’s Bank of China, the government has offered to form a joint venture with tech giants that would oversee the lucrative data they collect, which would mark a significant escalation in attempts by regulators to tighten their grip on the industry, Bloomberg News reported on Wednesday. .
“Tencent tries to reassure investors that its microcredit business is significantly different from Ant,” said Michael Norris, research director at the Shanghai-based consultancy firm in China. “While Tencent can avoid the same level of control as Ant Group, there can be bumps along the way. Potential issues could include careful scrutiny of data collection or regulatory attention to the promotion and cross-selling of financial products, ”he added.
Read more: China invited to Mull State-backed company to oversee tech data
Sales rose 26 percent to 133.7 billion yuan ($ 20.5 billion) in the three months ended December, from an expected 133.1 billion yuan on average. Net income amounted to 59.3 billion yuan, with one-time gains contributing more than half of its profits. This compared to the planned 32.9 billion yuan.
It is not known how far Beijing intends to go in its attempt to contain Tencent and its peers. In the near term, investors will likely focus more on how the world’s largest game publisher could support a pandemic-induced entertainment boom, while delving deeper into new businesses like 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 all-new Moonlight Blade Mobile.
All rely on WeChat, the avenue through which Tencent reaches users and markets products, including its biggest gaming hits like Honor of Kings and PUBG Mobile. Thanks to the mini-program model he championed, WeChat hosted $ 240 billion in transactions for 400 million daily users last year. Now he’s leveraging a new short video stream inside the versatile platform to fend off ByteDance Ltd., which has caught the eye of TikTok’s Chinese cousin, Douyin.
Tencent’s earnings engine may stand up to scrutiny: Tim Culpan
Social media sales soared 27%, in part after consolidating contributions from Tencent de Huya Inc. Online advertising revenue rose 22%.
Fintech and Enterprises – the division that oversees Tencent’s various monetary operations as well as the cloud – increased their revenues by 29% through payments and wealth management services. But concerns persist about whether the company can keep up this pace.
China’s largest firm faces closer scrutiny of its fintech operations as regulators step up oversight of a nascent but sprawling industry that could present systemic risks. As one of the largest operators in the industry, Tencent companies face the same stringent measures that have hampered Ant’s meteoric growth.
The proposed rules to break the concentration of the digital payments market and curb online consumer lending will hurt the prospects for Tencent’s WeChat Pay and its wider fintech business. Bloomberg reported this month that regulators are considering asking the company to consolidate its fintech operations into a holding entity that could be regulated more like a bank.
What Bloomberg Intelligence says
Tencent’s focus on managing risk at scale threatens to slow growth as the company tiptoes in a rapidly triggered regulatory landscape fraught with potential pitfalls.
– Vey-Sern Ling and Tiffany Tam, analysts
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Read more: Tencent said it will face a broad Chinese crackdown on Fintech and deals
(Updates with analyst commentary in fifth paragraph)
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