China’s tech giants – Tencent and Alibaba – are expected to reveal profit falls and slowing revenues for the last quarter after a year of regulatory crackdowns by Beijing.
The Communist Party has moved to reassert control over its once-freewheeling internet sector, punishing well-known names for engaging in what were previously considered regular market practices – and drafting new rules to change how they compete and engage users.
“We believe the financial impact of regulatory headwinds in China will be reflected in [third quarter] earnings and [fourth quarter] guidance,” KGI Asia analysts said in a note last month.
Tencent Holdings, the country’s largest firm by market value and its first big tech name to report earnings on Thursday, is expected to post a 12% fall in quarterly profit, its first drop in two years, according to Refinitiv data.
The gaming giant’s revenue is expected to rise 16.4%, the slowest pace since the first quarter of 2019, after the government imposed new limits on the amount of time minors can spend playing video games. China’s gaming regulator also has not approved any new games since August.
During the quarter, China also barred Tencent from signing exclusive music deals, citing anti-monopoly and competition reasons.
E-commerce powerhouse Alibaba, which became China’s first regulatory target late last year, is expected to post a 12% decline in profit in the current quarter. Revenue will likely rise 32%, the slowest in a year.
Two quarters ago, Alibaba had posted its first quarterly operating loss since going public in 2014 after it was fined a record $2.8 billion.
Its smaller rival JD.com is expected to post a 71% slump in profit and the slowest revenue growth in six quarters.
Sales And Power Hits
Slowing retail sales in China due to Covid-19 lockdowns and recent power shortages will also hurt Alibaba and smaller rivals, KGI Asia analysts said.
Big e-commerce companies in China are also facing rising competition from short video apps Kuaishou and ByteDance’s Douyin, which have growing e-commerce businesses.
Baidu, China’s biggest search engine operator, is expected to report that quarterly profit plunged 80%, hurt by a slump in advertising revenue from tutoring centres that have been barred from offering private, for-profit tutoring on the school curriculum. China’s efforts to regulate medical beauty advertisements have also hit advertising.
Still, with a recent slowdown in the pace of new regulatory missives that has stoked market optimism, investors will watch closely for clues on whether the worst is over and executives are likely be quizzed on their expectations on conference calls.
- Reuters with additional editing by Sean O’Meara