Tencent Holdings Co., Ltd. will reduce its holdings of most of shares of Meituan . The social media and gaming giant is starting to cash out its investment in the Internet industry.
Tencent
Tencent said on Wednesday that it will distribute more than 958 million Meituan shares as special dividends, worth approximately US$20 billion. After the distribution, Tencent's holding in Meituan will drop from the current 17% to 1.5%.
Since Meituan's inception, Tencent has been the company's major shareholder, while Meituan has used Tencent's super application WeChat to expand its user base. Tencent said in a stock exchange announcement that Meituan has developed into a company with strong financial strength and industry status. Tencent Chief Strategy Officer James Mitchell told analyst on Wednesday that investment in Meituan has brought about 30% return to Tencent.
Meanwhile, Tencent reported a second consecutive fiscal quarter decline. Tencent also announced on Wednesday that its third-quarter revenue fell 2% year-on-year to about $19.7 billion. China's economic slowdown affected game users' spending and digital advertisers' marketing budgets. Analysts surveyed by FactSet expect revenue to fall by 0.8% in the third quarter. Tencent's net profit rose 1% in the third quarter to about $5.6 billion, better than analysts' expectations for a 36% decline.
Meituan
By investing in hundreds of Chinese startups and enterprises, Tencent has expanded its field and influence. The reduction in Meituan shares highlights that Tencent is changing its strategy and starting to reduce its holdings after the Chinese government has stepped up its regulatory oversight in the Internet industry. Over the past year, Tencent has reduced its holdings in JD Group Co., Ltd. and Singaporean e-commerce and gaming company Sea Ltd.
Previous media reports that Tencent is planning to reduce its holdings in Meituan. It has been seeking to release cash from some of its mature assets in order to invest in other areas, while Tencent is trying to hedge against for its huge tech portfolio-related risks after many companies' market caps have experienced a year of sharp drop. Tencent also holds a large number of shares in e-commerce company Pinduoduo and short video platform operator Kuaishou Technology.
Tencent and Meituan stock comparison
Tencent and Meituan said that Tencent President Liu Chiping has resigned from Meituan's non-executive director and said that the two companies will maintain commercial cooperation relationship. Liu Chi-ping said that the overall regulatory environment is moving in a more supportive direction.
slowdown in economic growth has curbed spending by electronic game players, which is also the reason for Tencent's revenue decline in the third quarter.
Tencent’s game development strategy has changed, focusing on smaller and larger games, and paying more attention to product value and global influence.
In September, a small non-profit game from Tencent won the company's first game version number since June 2021. Since then, no game has obtained the version number , prompting game developers to extend the business cycle of existing products. According to industry data provider gamma data , the Chinese gaming market shrank by 19% year-on-year in the third quarter.
slowdown in economic growth has curbed spending for electronic game players
Tencent said its international game business revenue grew by 3%. Tencent and its smaller rival NetEase have sought to ease the impact of shrinking domestic market by investing in foreign game studios. Tencent spent about US$300 million in September to increase its stake in French game developer Ubisoft , and its direct stake in Ubisoft was 4.5%. The two companies are also releasing international versions of popular domestic games such as " King of Glory ", and have begun to develop mobile versions of foreign console and computer games such as "Monster Hunter".
online advertising business revenue fell 5% from the same period last year as advertisers cut their marketing budgets. Globally, tech companies including Facebook parent company Meta and TikTok have been coping with the challenge of slowing the digital advertising industry.
Tencent said that its WeChat video account has not yet fully monetized through e-commerce and advertising, but the company expects that the video account business will reach a revenue milestone of RMB 1 billion (approximately US$142 million) in the fourth quarter. WeChat Video Account shows TikTok's Chinese sister application Douyin as a competitor.
Tencent's fintech and enterprise service business departments (including mobile payment tools WeChat payment and cloud computing businesses) surpassed the gaming business and became the company's largest source of revenue. Revenues have increased by 4% over the same period last year as some commercial activities recover from earlier outbreaks of mask interference. Tencent has also been developing overseas customers. The company is building a new data center in Japan and attracting more companies in Southeast Asia to use WeChat payments to attract Chinese tourists. The
announcement shows that in the past quarter, Tencent’s employee base has decreased by about 2% compared with the previous three months, down nearly 1,900. Tencent calls it improving efficiency, and the company recently withdraws from some loss-making businesses, such as the digital collection market, and strengthens control over marketing expenses.
Since the beginning of this year, Tencent's stocks listed in Hong Kong have fallen by more than 35%. Since the largest shareholder, Prosus NV, said in June that it would reduce its stake in Tencent, the company has spent the equivalent of $2.3 billion to buy back shares. Since mid-October, Tencent has suspended regular stock buybacks.
