The advent of stricter regulations around gaming and resurgence of COVID-19 have resulted into slow growth for Chinese technology companies. After Alibaba another Chinese firm Tencent has posted its first ever quarterly year on year revenue decline. Tencent posted quarterly revenue of $19.7 billion and it’s a 3% fall when compared to same period last year. Tencent’s workforce also reduced by 5% underscoring extent to which China’s worsening economy is hurting its biggest corporations. China’s most valuable company recorded its first quarterly drop in staffing since 2014. This is as layoffs are rippling through global tech sector finally hit WeChat operator Tencent. The economic uncertainty in world’s second largest economy China is wreaking havoc on businesses from advertising to cloud computing and gaming as well.
During the quarter, Tencent faced macroeconomic headwinds stemming from the resurgence of COVID-19 in China and subsequent lockdowns of major cities including the financial capital of Shanghai. Chinese authorities have committed to a zero COVID-19 policy which has caused disruptions across the world’s second largest economy. China’s economy grew just 0.45% in the second quarter missing analyst expectations. China’s domestic video games industry has also faced challenges due to stricter regulation. Currently Tencent makes about a third of its total revenue from gaming. Last year Chinese regulators introduced a rule limiting the amount of time children under 18 years old could spend playing online games to a maximum of three hours every week and only during specific times. Regulators also froze approval of new games between July 2021 and April 2022.
During the height of COVID-19 pandemic and lockdowns globally people turned to gaming for entertainment and companies like Tencent saw a jump in their business profits then. But since countries have reopened people are spending less time playing games and year on year comparisons for companies are tough to live up to.