Momentum is definitely not good for Tencent. After the first decline in turnover since at least 2004, in August the Chinese company just left the chair of the most popular Chinese company, almost two months later.
Alcohol and games
It’s Kweichow Moutai, an alcohol giant, benefiting from the downfall of the video game and social media giant. The valuation of this supplier of Baijiu, a popular special-occasion liquor, exceeds the dropped sample of more than $ 5.4 billion.
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This race for first place, anecdotal in itself, has the merit of highlighting Tencent’s difficulties. Its value reached unprecedented levels in January 2021, but has since lost nearly 64% on the Hong Kong Stock Exchange, a $ 623 billion valuation drop.
The reasons for this decline are manifold. First, since late 2020, Beijing has decided to put constant regulatory pressure on its digital giants.
For Tencent, this is manifested by the limitation of the time of video games for minors, the ban on releasing new games, the opening of its services to competition, the suspension for a few months of its WeChat social network, music, streaming, education. ..
Tencent’s stock market crashes followed one another at the pace of the new regulations. While the authorities have eased the pressure slightly since then, the company’s situation remains fragile.
Tencent also suffers from the more global context. Beijing’s “Zero Covid” policy and its multiple localized blocks are hurting advertising revenue and commercial payments, two important businesses for the company. Furthermore, as in the United States, the economy is in a worrying dynamic from which the digital giants are particularly affected.
Tencent is having a hard time, but it stays on top
To stem this situation, Tencent has decided to sell some of its assets, to abandon the activities deemed non-essential and to reduce its expenses. Obviously insufficient, because according to a report by the Morgan Stanley bank, presented by Bloombergthe difficulties persist in the eyes of the shareholders.
The bank estimates that $ 30 billion worth of shares have been sold since the beginning of the year. Much more than other comparable Chinese companies, the pace would even tend to accelerate. Majority shareholders are also selling.
Tencent is far from bankruptcy. It should not be forgotten that the disappointing turnover of the second quarter, however, is close to 20 billion dollars. With the stabilization of regulatory pressure, the company could easily get out of this bad moment and regain its position as the leader of Chinese groups.
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