Chinese tech giant Tencent posts $370 billion revenue loss, the biggest so far

China's biggest technology company, Tencent Holdings, revealed its first revenue fall since going public in 2004. It also posted missed earnings targets as a result of cutting roughly 5,500 jobs from its workforce in the second quarter due to a stagnating economy.

The Shenzhen-based gaming and social networking company, reported revenue of 134 billion yuan (US$19.8 billion) in the quarter ended  June 30, a 3% decrease from the same period last year. The results were was worse than the 135.6 billion yuan consensus projection, according to Bloomberg analysts' survey.

The quarter's net income was 18 billion yuan, which was below expectations of 25 billion yuan and down 56% from the same period last year.

According to the company, Tencent reduced its staff for the very first time since 2014, bringing the total to 110,715 by the end of the June quarter from 116,213 in March. The cost of its compensation decreased from 29.2 billion yuan in the first quarter of 2022 to 27.55 billion yuan in the second quarter.

The release of the second-quarter financial results follows Reuters' Tuesday report that Tencent was planning to sell all or part of its 17% stake in Meituan. This news sent shares of the world's largest online delivery company plunging as much as 10% before recovering 3.3% to HK$170 on Wednesday.

Prior to the release of the financial results on Wednesday, Tencent shares in Hong Kong increased by less than 0.1% to HK$303.2.

Tencent fell short of revenue and profit projections. The company experienced macroeconomic challenges throughout the quarter as a result of Covid's resurgence in China and the ensuing city-wide lockdowns that followed. The "Zero Covid" policy adopted by the authorities has disrupted the second-largest economy in the world.

Analyst estimates were not met by China's second quarter economic growth of just 0.4%. The company's finance, cloud, and advertising revenues were impacted by this.

Due to greater regulation, China's domestic video game industry has also had difficulties. Gaming generates nearly a third of Tencent's overall income.

Chinese authorities implemented a rule restricting the amount of time minors under the age of 18 spend playing computer-based games to a weekly limit of three hours and only during particular hours last year.

The authorization of new games was also put on hold by regulators from July 2021 to April of this year. Before a game is published and become monetizable in China, regulators must give the game the all-clear.

In a report released last month, analysts at China Renaissance said that Tencent only released three mobile games in Q2 2022. As a result, the business has depended on its already-popular titles to bring in money.

As part of its attempts to reduce spending, Tencent, which operates the largest video game industry by sales and China's top social networking site via the WeChat app, has started many rounds of layoffs recently.

In addition to a number of other cost-cutting measures, including eliminating free breakfast and dinner for contract workers, changing its salary policy, and implementing a new performance evaluation for employees.