Tencent’s Earnings Show Resilience Amid China’s Downturn
Tencent reported its financial results for the September quarter on Wednesday, displaying significant resilience in the face of an economic downturn in China. The internet giant reported net profit and revenue that beat estimates, sending its shares up 5% in today’s session.
Tencent’s Net Profit Down 9% Year-Over-Year, But Revenue Demonstrates Financial Health
Tencent Holdings reported better-than-expected earnings and revenue in its latest quarterly report, underscoring that spending by Chinese consumers on games and entertainment remains robust despite an economic downturn.
The technology giant reported a year-over-year revenue increase of 10% to 154.6 billion yuan ($21.4 billion) for the September quarter, driven by growth across multiple divisions. Net profit fell 9% from a year earlier due to higher content spending, which was still above the consensus estimates of 36.2 billion.
On Wednesday, the company’s shares rose nearly 5% in Hong Kong trading.
Online advertising posted the fastest growth in the three-month period, securing a revenue gain of 20%. Gross profit in this category jumped 35% to 13.45 billion yuan ($1.8 billion). The increase was driven partly by growing user engagement in video, which saw a 50% jump in total views.
Gross profit from Tencent’s games and social network unit rose 12% year-over-year to 42.04 billion yuan ($5.8 billion). In the fintech and business services segment, gross profit increased 43% to 21.31 billion yuan.
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China’s Macroeconomic Conditions Worrying, Tech Giants Seen as Bright Spot
Tencent’s latest results may reassure investors amid mounting concerns that the biggest internet arena in the world is deteriorating after years of regulatory and economic headwinds. Put differently, the report demonstrates that lower-cost spending and leisure remain strong in China despite a downturn in several sectors like international travel and luxury.
Investors have been concerned about a potential deflationary downturn in the second-strongest economy in the world, particularly after discouraging spending on e-commerce platforms during the Singles’ Day shopping festival.
Consumption in the country remains soft due to a myriad of challenges, most notably the property market crisis and growing youth unemployment. These deflationary pressures were exacerbated in October, fueling convictions that China needs more stimulus to spur growth. However, China’s gross domestic product (GDP) grew at a faster-than-expected rate in Q3 thanks to a strong retail sector.
Amidst these headwinds, tech behemoths like Tencent and Alibaba represent a bright spot for China’s economy. These companies significantly contribute to China’s digital sectors like e-commerce, internet, payments, and gaming, supporting economic growth and innovation in the nation.
From a macro viewpoint, do you think China’s recession will deepen in 2024? Let us know in the comments below.