Tencent joins Alibaba in spending spree as competition grows

The increased spending comes as the company faces competition from the likes of ByteDance

Tencent earned $21 billion in sales in the three months ended March. Reuters

Tencent Holdings pledged to sharply increase investments this year after posting a 25 per cent gain in quarterly revenue, joining its biggest rivals in a spending binge that will jack up competition in China’s post-pandemic internet arena.

China’s largest tech corporations are vying to entice users in the fast-growing arenas of online commerce and video. Tencent plans to plow a larger portion of its incremental profits this year into cloud services, games and video content, joining Alibaba Group and Meituan in telegraphing sharp hikes in investment.

Tencent is trying to sustain growth in revenue, which climbed to 135.3 billion Chinese yuan ($21bn) in the three months ended March. But its shares slid more than 3 per cent in Hong Kong on concerns about margin erosion, which prompted brokerage CICC to trim its earnings estimate.

The increased spending comes as Tencent faces competition from the likes of ByteDance and growing scrutiny from Beijing. Pony Ma’s company has largely escaped the anti-trust crackdown for now - despite its ubiquitous WeChat app offering unrivalled insights into all aspects of Chinese life and a commanding lead in gaming, music and social media markets.

But its FinTech arm, alongside those of other giants such as Didi and Meituan, faces wide-ranging restrictions similar to the ones imposed up on Jack Ma’s Ant Group.

Net income came in at 47.8bn yuan in the March quarter, buoyed by 19.5bn yuan of gains from the value of investments and disposals. Excluding those gains, adjusted net income came in at 33.1bn yuan, slightly behind estimates.

For now, gaming and social content remain Tencent’s biggest and steadiest cash generators. Online gaming revenue rose 17 per cent during the quarter.

Executives sought to assuage investor concerns, reiterating that Tencent remains very focused on risk management and has been “self-restrained” on the size of its non-payment financial products.

“When we look into the internal review and when we look into what other things that need to be done in order to make sure that we are compliant with the spirit of the regulators, it’s actually relatively manageable,” Tencent’s president Martin Lau told analysts on a conference call.

The company also reiterated earlier-disclosed plans to invest 50 billion yuan in its so-called social values initiative, where it will fund philanthropic efforts in areas such as education, rural revitalisation and carbon neutral - areas that align firmly with Chinese President Xi Jinping’s priorities.

The decision to ramp up investment is mainly driven by broadening market opportunities observed in business services, online games and short-form videos.

There are also competitive pressures from industry peers who are spending aggressively. While near-term costs will increase, the timing of returns from these investments may be unpredictable.

The Chinese giant had shed roughly $200bn in market value since its January peak, part of a broader tech selloff that had investors weighing the potential fallout for the online juggernaut. Apart from FinTech, competitors have long argued WeChat - now venturing into short videos and e-commerce - is locking users inside its ecosystem by blocking links to external services.