Chinese tech group Tencent on Wednesday said it would “distribute” the majority of its $22bn stake in Meituan, a food delivery company, in dividend, as it works to reduce its holdings in the country’s technology sector.
Tencent’s quarterly revenue fell for a second quarter, underscoring the toll of Beijing’s bruising regulatory crackdown on the country’s internet sector and the impact of slowing economic growth in the world’s second-largest economy.
The tech group posted quarterly revenue of Rmb140bn ($19.7bn) in the three months ending September 30, down 2 per cent from the same period last year and slightly missing analyst forecasts of Rmb141.4bn. Tencent’s net profit increased 2 per cent to Rmb32.3bn.
“Our resilient businesses, diversified cash flows, sizeable cash balance and substantial investment portfolio enable us to invest in strategic growth areas and innovation, while at the same time returning capital to shareholders,” said Tencent chair Pony Ma on Wednesday.
“We will distribute the large majority of our Meituan shareholding, which has generated significant returns, both strategically and financially.”
Tencent will distribute $20bn of Meituan shares in March 2023 to shareholders to reduce its exposure to China’s tech sector.
The Financial Times reported in September that Tencent was planning on divesting Rmb100bn of its $88bn listed equity portfolio, including stakes in Meituan. At the time, Tencent said it “did not have any target amounts for divestments”.
Tencent has accelerated share repurchases this year, returning cash to shareholders as its stock price hovers at a four-year low. So far this year, Tencent has repurchased $13bn of its shares. Tencent’s Hong Kong-listed shares closed 2.2 per cent higher on Thursday.
Analysts said Tencent’s share buyback programme has prevented further share price slides. A recent rally in Chinese equities due to Beijing loosening its strict zero-Covid policy and offering support to the property sector has bolstered sentiment.
“A lean, optimised operation combined with potential revenue acceleration ahead — driven by top down factors such as macro and regulations — is a good set-up that investors will like,” said Charlie Chai, an analyst at Shanghai-based 86 Research.
Tencent is battling the twin challenges of weak consumer confidence following successive rounds of pandemic lockdowns in China and a wave of new regulations that loosened the grip of its tech empire.
The owner of the ubiquitous messaging app WeChat has scaled back its once aggressive pursuit of Chinese internet companies and is divesting large chunks of its portfolio, sending reverberations through the country’s tech industry.
Revenue from online advertising fell 5 per cent to Rmb21.5bn as companies slashed marketing budgets.
Analysts suggest that officials may be taking a softer approach to the gaming sector after regulators restricted children’s playing time and halted approvals for new game titles in the summer last year.
In September Tencent won its first licence for a new gaming title since June 2021, easing investor concerns about the dearth of approvals granted to Chinese internet groups.
Tencent said it had become “fully compliant” with Chinese regulations on gaming for minors and that the time spent by children on its games plummeted 92 per cent in the third quarter compared with the same period last year. Tencent president Martin Lau said during the investor call on Wednesday that the company “believed more licenses will be forthcoming in the future”.
In a sign that Beijing’s crackdown may be easing, the People’s Daily, China’s state media, on Wednesday published an opinion piece saying that the gaming industry can “support the development of advanced technologies” and “play a more important role in enhancing the global influence of Chinese culture”.
This stands in marked contrast to an article on a news site owned by the state news agency Xinhua last year, which criticised online video games as a form of “spiritual opium worth hundreds of billions”.
Chai said investors had “a greater peace of mind as the overall political agenda moves away from regulation to pro-growth policies”.
Additional reporting by Nian Liu in Beijing and Cheng Leng in Hong Kong
