Tencent to Stabilize in Fourth Quarter with Solid Recovery in Revenue Growth Next Year, Analyst Say

Inno Flores, Tech Times 01 January 2023, 11:01 pm

As China's economy continues to stabilize, Tencent Holdings might bounce back from its 2022 downsizing with several layoffs, shutdowns, and investment quitting. Improvement can be seen in 2023 as the macro economy improves advertising and gaming businesses.

(Photo : GREG BAKER/AFP via Getty Images)
A man walks past a sign for Tencent, the parent company of Chinese social media giant WeChat, outside the Tencent headquarters in Beijing on August 7, 2020. - Beijing on August 7 accused the United States of "suppression" after President Donald Trump ordered sweeping restrictions against Chinese social media giants TikTok and WeChat.

Recovering Earnings and Revenue

In a report from South China Morning Post, analysts say that Tencent Holdings should expect an improvement in sales as China's macroeconomic environment stabilizes continuously. This will positively affect the company after experiencing reducing its workforce, shutting down businesses, and quitting investments.

Blue Lotus Capital Group Managing Director and Deputy Research Head in Shenzhen Shawn Yang stated, "Tencent may finally stabilize in the fourth quarter, but a solid recovery in revenue growth will need to wait until 2023 when an improvement in the macro economy should boost its advertising and gaming businesses."

Aside from Yang, many analysts said that the worst days of Tencent Holdings will come to an end this year. Zhongtai International Analyst Qin Yue stated that the earnings will resume rapid growth and the pandemic just remains a short-term disturbance for the company.

He added that video accounts will be the company's main driver for its future growth. Adding to this is the slow down of users in applications like Douyin and Kuaishou, who migrated to Tencent's WeChat.

Morning Star Analyst Ivan Su expects a 15% estimated growth in total revenue for the company this year, through the domestic gaming business and no implementations of major regulations by the government. This may return to year-on-year growth in the second quarter of the year.

Tencent's 2022

During an internal meeting in December, Founder Pony Ma warned his employees that several measures will still be conducted in 2023, in relation to cost-cutting expenses. Instead of aiming for expansions in several areas and scales, the company will focus more on core businesses.

Several rounds of layoffs have been conducted by Tencent in the second and third quarters of the past year. 7,377 jobs were cut by the tech giant as cloud computing and video streaming became loss-making businesses.

Services also ended, such as the live streaming platform Penguin Esports launched six years ago, news aggregator application Kuai Bao, and short video application Vue Vlog. Meanwhile, the WeChat operator also closed its operations with at least 40 products affected.

Tencent also quit some of its investments, as the company needed to cash in some returns. Last November, the company was giving away 90% of its stake in Meituan to existing shareholders as a special dividend.

Also Read: Tencent Lays Off Almost All of Fanbyte's Editorial Staff, Following Company's Revenue Decline

Among these setbacks, Tencent received good news last week as they were granted publishing licenses to release foreign games in China. Reuters reported that the National Press and Publication Administration approved 44 imported games to be published in the country, including Nintendo's Pokemon Unite and Riot Games' Valorant.