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Tencent Shuts Down Businesses, Cuts 5% Workforce As China’s Economy Tanks

Tencent Shuts Down Businesses, Cuts 5% Workforce As China’s Economy Tanks

China’s economy has struggled to overcome shocks emanating from a series of events including covid-19 and the crackdown on the internet industry.

The situation has resulted in huge loss of revenue to companies. As the economy takes more hits, companies are beginning to downsize to stay afloat.

Tech giant Tencent has cut more than 5,000 staff and shut down parts of its business as it grapples with its first sales fall in its history, the BBC reports.

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Revenue at the firm slipped 3% year-on-year in the April-June period, hit by declines in ad spending and at its online gaming business.

The WeChat owner, which has reported double digit growth almost every quarter since it went public in 2004, is feeling the effects of a regulatory clampdown on gaming, as well as wider economic downturn.

China’s central bank on Monday cut interest rates to try to spur activity.

The country, which continues to respond to Covid outbreaks with mass shutdowns, last month reported its economy had contracted sharply in the three months to July and signaled it may miss its official 5.5% growth target.

In an appearance on Tuesday, Chinese Premier Li Keqiang said China was facing “the most difficult point of economic stabilization” and urged provincial leaders to boost their support for the economy.

“We must consolidate the foundation for economic recovery and development with a sense of urgency that cannot wait,” he said.

Other companies have also taken a hit, notably e-commerce giant Alibaba, which said it had seen no sales growth in its most recent update for investors, a first for the company.

Tencent has enjoyed a long run of rapid growth.

Now the country’s most valuable public company, it is known for its WeChat messaging service and roster of online games.

About half of its revenue comes from online advertising, financial and business services, where the effects of the wider downturn were evident, with revenue gains from cloud and other offerings slowing sharply, while ad sales plunged 18%.

The firm has faced challenges since China last year tightened restrictions on children’s game playing and halted approvals of new games. While those approvals have resumed, Tencent has yet to see one of its games given a green light, forcing it to rely on older titles.

Gaming revenue was down 1% in China and in its international markets, “due to industry-wide normalisation in user spending on mobile games post-COVID”, the company said in a presentation.

The firm said it had shut down online education, e-commerce and game live streaming units. The layoffs in the quarter affected about 5% of its total workforce.

“During the second quarter, we actively exited noncore businesses, tightened our marketing spending, and trimmed operating expenses,” Tencent boss Ma Huateng, known as Pony Ma, said.

He added that the firm was focused on “enhancing the efficiency” of its businesses and well positioned once the Chinese economy starts to recover.

Overall revenue was 134bn yuan ($19.8 billion) compared to the year before, while profits plunged by 56 percent to 18.6bn yuan.

But Tencent promised a return to growth even if the economy stayed weak.

The tech giant’s President Martin Lau noted on a post-earnings call that China had issued no new regulation this year that was materially detrimental to the industry. He added that he expects Wechat’s video accounts – a short-video rival to ByteDance’s Tiktok – to boost advertisement sales and become a big revenue driver.

“We believe with those three sets of initiatives taken together, we can return the business to year on year earnings growth, even if the macro environment remains as it is today,” said Tencent’s Chief Strategy Officer James Mitchell.

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1 THOUGHT ON Tencent Shuts Down Businesses, Cuts 5% Workforce As China’s Economy Tanks

  1. Businesses are meant to stay afloat based on their revenues and profitability, and not on investors money, anyone relying on the latter is not yet a business. It’s that simple.

    Nigeria didn’t suffer long stretches of lockdown because covid never really took hold here, yet we are not outperforming; it tells you how unproductive we are. All the things that ordinarily should give us natural advantages are looking like misfortunes, a strange situation all round.

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