HONG KONG, March 15 (Reuters) – It’s a bold but straightforward solution to the escalating regulatory conflicts that Tencent (0700. HK) is facing. The Wall Street Journal reported on Monday that WeChat’s payments-to-messaging service may be under investigation for money laundering and other financial violations.
Additionally, the company is losing money because of the censorship of its video-games business. The latter is a simple approach to separate Beijing’s dangers from the rest of the country. During uncertain markets, Pony Ma doesn’t need a financial crackdown on his mobile payments department. Read more: The corporation is already dealing with China’s Omicron outbreak and the wider economic recession.
Tencent Has Evaded.
Cybersecurity and anti-trust investigations have caught competitors like Didi Global (DIDI.N) and Alibaba, but Tencent has evaded them with ease (9988. HK). However, its games have been thrust into the spotlight because of concerns that they may be contributing to children’s myopia and online addiction. According to Refinitiv, the company’s five-year average stock price is now less than half that of Take-Two Interactive (TTWO.O) and Activision Blizzard (ATVI.O), while its market capitalization has shrunk from $600 billion to $400 billion in the last year alone (ATVI.O).
The company’s main business may be ring-fenced to reduce some of the uncertainty. China’s central bank has a history of stamping out entire industries like peer-to-peer lending and cryptocurrency, but the regulatory dangers for video games are more predictable. Additionally, Tencent has handled the majority of Beijing’s worries, including enforcing limitations on how much time and money children may spend on online gaming, at a minimal cost to its bottom line.
The Company Will Produce $27 Billion.
Analysts at Citi predict that the company will produce $27 billion in sales in 2021, an increase of 11% over the previous year, as a result of its global growth initiatives.
While Tencent’s under-fire empire includes its WeChat social network, payment services, cloud computing, and advertising across numerous platforms, a split would help to focus on that value and not let it wane. As a result of the 2018 restructuring, the unit is no longer part of the same business group as the other divisions. The wisest course of action may be to call it quits.
When asked about the prospect of forming a financial holding company during a conference call on Wednesday, company president Lau said that Tencent was working closely with regulators to investigate the possibilities and that a final solution might benefit the company in the long term. Thirty percent of Tencent’s revenue came from fintech and corporate services last year, bringing in 172 billion yuan, close to the 172 billion yuan generated by video games.
The Regulatory Storm in China.
Nevertheless, there are hints that the regulatory storm in China may be subsiding. Liu He, Chinese Vice-Premier, presided over a conference at which the country’s regulation of Big Tech was declared to be “open and predictable,” in an apparent attempt to stem the stock-price decline of Chinese companies listed in New York and Hong Kong.
According to Morningstar stock analyst Ivan Su, the regulatory environment in China’s tech sector will improve this year. However, I don’t foresee any new announcements of a significant tightening of existing regulations.”
Tencent has also demonstrated its ability to withstand government pressure. However, despite the Chinese government‘s decision to limit online gaming time for minors to three hours per week and the suspension of new video game licenses since last summer, Tencent’s revenue from video games in China grew 6% last year, while overseas revenue grew 31%, thanks to the popularity of titles like PUBG Mobile.
This will continue to be Tencent’s biggest advantage in an increasingly competitive marketplace, as its domestic gaming and advertising businesses “should remain extremely large and profitable businesses in an absolute sense,” Kato at LightStream stated.
Tencent’s Primary Goal.
It’s too early to tell if the couple will call it quits. For the time being, Lau stated that Tencent’s primary goal is to safeguard the company’s long-term viability. In order to achieve long-term, healthy growth, each company must be tailored to provide the best possible service to its customers.
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