Tencent profits boom, but worries persist – With insights from The Wall Street Journal

South Africa's equity indices rely more on the performance of Hong Kong-listed internet giant Tencent than any other single factor. The Naspers/Prosus combine have a weighting of over one fifth of the JSE's major indices – with their share prices totally reliant on the machinations of Tencent's, of which they own 31%. So Tencent's financial results, released last night, are significant for both Nasper/Prosus shareholders and also any South African invested in broad-based equity ETFs. As the story below from our partners at The Wall Street Journal unpacks, the good news is Tencent's exponentiality is intact with 28% revenue growth and a 71% profit surge for 2020. The bad news is the regulation-happy Chinese central government has become the biggest risk to the business's long-term prospects. – Alec Hogg.Use Spotify? Access BizNews podcasts here..___STEADY_PAYWALL___.Use Apple Podcasts? Access BizNews podcasts here..Tencent Stresses Regulatory Compliance as Profits From Gaming, Payments Surge.Gaming giant benefited from a pandemic lockdown last year but faces scrutiny from Chinese regulators.By Stephanie Yang of The Wall Street Journal.Updated March 24, 2021 3:39 pm ET.TAIPEI— Tencent Holdings Ltd. TCEHY -5.09% Chief Executive Pony Ma emphasized his commitment to working with regulators amid heightened government scrutiny over China's powerful technology companies, as strong growth in mobile gaming and payments propelled the social-media and entertainment giant to its most profitable year yet..Mr. Ma's message Wednesday, made during a quarterly earnings briefing, comes as Beijing steps up antitrust efforts against China's tech sector, where companies have collected massive amounts of user data..Tencent was among several companies fined by antitrust regulators this month for failing to properly report past acquisitions. Meanwhile, the State Council's antitrust committee has been gathering information about Tencent's online payments service WeChat Pay—alongside rival Ant Group Co.'s Alipay—since last year due to their dominance in China's payments market, according to officials familiar with the investigation."We are working closely with the government and the regulators on our compliance," Mr. Ma said through translation, when asked about China's antitrust regulations.This month Mr. Ma met with Chinese antitrust regulators from the State Administration for Market Regulations after he requested to see them, people familiar with the matter said.In a conference call Wednesday, Tencent President Martin Lau said the meeting was voluntary and a normal part of conducting business. "We had discussions about a broad range of topics and the main focus is actually on creating a healthy environment on innovation to happen in China," Mr. Lau said.The State Administration for Market Regulations and the State Council's antitrust committee didn't respond to requests for comments. Reuters earlier reported on Mr. Ma's meeting.Investor concerns have grown since Chinese authorities tightened regulations to rein in the country's rapidly expanding internet industry. Antitrust regulators are probing e-commerce giant Alibaba Group Holding Ltd., while Tencent has also been fined for failing to properly report past acquisitions.Yet Tencent, like many other technology giants, benefited from a year in which the coronavirus pandemic led homebound consumers to turn to online products and services.Revenue at the world's biggest videogame company reached 482.06 billion yuan, or $73.88 billion, in 2020, a 28% increase compared with the previous year. Net profit for the year was 159.85 billion yuan, a 71% rise.Net profit for the quarter ending in December nearly tripled to a record 59.30 billion yuan, after the valuations of the companies it invested in grew. Revenue rose 26% to 133.67 billion yuan. Both beat analyst expectations.Tencent's mobile gaming business has flourished during the pandemic, with online gaming revenue increasing 29% year-over-year in the fourth quarter. The company said its "Honor of Kings" was the top-grossing mobile game globally for the second year in a row.Revenues from financial technology and business services grew 29% last quarter, the company said, due to growth in commercial payments and wealth-management services. In its financial report, Tencent said that its priority for its fintech business is risk management rather than scale, and it said it would work closely with regulators.Tencent's presence in the e-commerce industry has also grown. The company reported that last quarter's advertising revenue increased 22% year-over-year in part because of increased demand in e-commerce platforms and consumer goods.Annual transaction volume generated through WeChat's mini programs, which function as apps within the messaging app, more than doubled in 2020 compared with the previous year.—Keith Zhai and Yifan Wang contributed to this article.Write to Stephanie Yang at stephanie.yang@wsj.comCorrections & AmplificationsTencent's revenue reached $73.88 billion in 2020. An earlier version of this article incorrectly said revenue was $73.88 million. (Corrected on March 24)Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8Appeared in the March 25, 2021, print edition as 'China's Tencent Vows Compliance As Profits Surge.'

Tencent profits boom, but worries persist – With insights from The Wall Street Journal

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