Tencent Holdings announced on Thursday its plans to concentrate on its core business while implementing cost-cutting measures and enhancing efficiencies. This decision comes as the company reported its first-ever decline in annual revenue. In 2022, Tencent, the world’s largest video game company and operator of the WeChat messaging platform, recorded revenue of CNY 554.55 billion yuan (approximately Rs. 6,65,600 crore), down by 1 percent compared to the previous year. The decrease in revenue can be attributed to China’s economic slowdown during the pandemic and an ongoing regulatory crackdown that affected profits.
During a call with reporters, Tencent Chair and CEO Pony Ma revealed that the company’s focus for the year ahead would be on optimizing and extracting more value from its existing core businesses. This shift in strategy means moving away from attempting to do everything and avoiding highly competitive markets. Ma emphasized the importance of focus and breakthroughs for overall development, stating, “We hope that our entire business management team and technology will be more focused.”
The business outlook in the gaming market, the largest in the world, remains uncertain due to the regulatory crackdown. However, there is hope for a recovery as regulators have recently resumed granting publishing licenses after a months-long freeze. It is worth noting that unlike in other countries, video games in China require approval from regulators before release.
The regulatory crackdown has significantly impacted China’s tech giants, as regulators have increased scrutiny over monopolistic practices and companies’ handling of user information. Martin Lau, Tencent’s president, expressed optimism during a call with analysts, stating that regulations are being normalized and support for platform companies is expected to improve this year. He mentioned that Chinese President Xi Jinping has highlighted the importance of supporting platform companies to stimulate employment, consumption, and international competition. Additionally, the private sector is recognized as having significant potential in the Chinese economy.
Despite the challenges faced in the gaming and fintech sectors, Tencent’s online advertising business experienced a strong recovery in the fourth quarter. The segment’s revenue increased by 15 percent, contributing to a 1 percent rise in the company’s overall revenue for the quarter ended in December. This growth in the advertising business counteracted the losses suffered in the domestic gaming and fintech sectors.
Analyst Charlie Chai acknowledged that Tencent’s overall performance was lukewarm but praised the advertising segment for surpassing expectations and delivering impressive growth despite the COVID-19 challenges.
During the media call, President Lau also discussed Tencent’s ventures into generative artificial intelligence (AI), a field that has gained global interest. He mentioned Tencent’s development of a ChatGPT-like chatbot named “HunyuanAide,” incorporating Tencent’s Hunyuan AI model. The company is rapidly advancing its proprietary foundation model, Hunyuan, and plans to gradually introduce its own AI foundation models.
Tencent’s chief strategy officer, James Mitchell, expressed the company’s readiness to invest heavily in training AI models, even though cost-cutting measures are being implemented in other areas. He reassured that Tencent has an ample supply of computer chips for developing its AI models, despite the export controls imposed by the United States.
In conclusion, Tencent’s decision to prioritize its core business and improve efficiencies aligns with its focus on extracting more value from existing ventures. While the regulatory crackdown and economic slowdown impacted the company’s revenue, there are optimistic prospects for recovery in the gaming market. The strong performance of Tencent’s online advertising business in the fourth quarter provided a welcome boost. Additionally, the company’s progress in generative AI demonstrates its commitment to innovation.
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Eugen Boglaru is an AI aficionado covering the fascinating and rapidly advancing field of Artificial Intelligence. From machine learning breakthroughs to ethical considerations, Eugen provides readers with a deep dive into the world of AI, demystifying complex concepts and exploring the transformative impact of intelligent technologies.
