Tencent Holdings Ltd recognizes that a "new paradigm" is taking shape in the internet industry and will adopt a cautious stance on business expansion henceforth, its top executives said late on Wednesday, after reporting the company's slowest pace of revenue growth in years.
Tencent's President Martin Lau said, "We are proactively embracing changes to better align ourselves with the new industry paradigm … where the long-term oriented corporate culture will focus on user value, social responsibility, technology innovations and compliance, the key elements for sustainable and healthy growth."
Tencent's 2021 revenue came in at 560.1 billion yuan ($87.94 billion), up 16 percent year-on-year－the slowest annual revenue growth rate on record. Profit attributable to equity holders was 24.9 billion yuan, down 25 percent year-on-year.
Hong Kong-listed Tencent shares slid nearly 6 percent to close at HK$366($46.8) on Thursday.
Tencent CEO Pony Ma lauded the Chinese government's plans for regulations on the tech sector to protect the interests of society. They vowed to better align the company's efforts for growth with national goals through initiatives like cost controls and rationalization of noncore business lines.
During an investor call on Wednesday, Lau said, "For several years, industry participants have overemphasized zero-sum competition, aggressive marketing, reckless expansion, short-term growth and corporate benefits, overlooking the most important elements of sustainable growth."
For the quarter to end-December, the company posted 144.2 billion yuan in revenue on a non-IFRS(international financial reporting standards) basis, up 8 percent year-on-year－among the slowest growth rates in years.
Non-IFRS adjustments exclude share-based compensation and merger and acquisition-related impacts. In the same quarter, Tencent offloaded a majority of its stake in e-commerce player JD.
Although market insiders expected a weak result, the magnitude of profit decline might have exceeded expectations, wrote Citi analysts in a note, which promptly cut Tencent's target price to HK$562 from HK$634, based on lower target multiples reflecting slower growth outlook.
"We maintain Buy and still see Tencent as core holding given its proven execution track record on navigating through challenging headwinds without compromising investment commitment in key strategic initiatives," the Citi note said.
Tencent will continue to invest in strategic growth areas, video accounts, international games and SaaS (software as a service), its executives said.
Yet, at the same time, it has decided to cease spending whatever it takes to grow its cloud revenue. Revenue from Tencent's fintech and business services, which include its cloud business, surged 25 percent to 48 billion yuan.
Revenue from domestic games grew by 1 percent year-on-year to 29.6 billion yuan, a reflection of a licensing halt along with restrictions on playtime for minors that have curbed Tencent's iconic revenue division. Its executives said they expect to "fully digest" the impact of the measures to protect young users in the second half of this year.