Actively switch the development engine! Behind the pressure on short-term performance, what changes have taken place in Tencent?

Ma Huateng said that China's Internet industry is structurally moving towards a healthier model, returning to the origin of user value, scientific and technological innovation and social responsibility. Tencent is actively adapting to the new environment, reducing costs and increasing efficiency, focusing on key strategic areas, and striving for long-term sustainable growth

"Investment Times" reporter An Zhe

Tencent Holdings (HK.00700) released its Q4 and annual reports for 2021 on 23 March 2022. According to the data, Tencent's net profit (Non-IFRS) in Q4 2021 was 24.88 billion yuan, down 25% year-on-year, which is the second consecutive quarter of tencent's negative net profit growth after a 2% decline in net profit in the third quarter.

The "Investment Times" reporter noted that in the whole year of 2021, Tencent achieved revenue of 560.118 billion yuan, an increase of 16% year-on-year, and net profit (Non-IFRS) of 123.788 billion yuan, an increase of 1% year-on-year, which is the lowest annual net profit growth rate of Tencent in the past decade.

It is worth noting that in the fourth quarter of 2021, the revenue of Tencent's financial technology and enterprise services sector increased by 25% year-on-year to 47.958 billion yuan, surpassing the online game sector for the first time and becoming the business segment with the largest contribution to Tencent's revenue. This new change means that behind the overall pressure on short-term performance, Tencent has achieved remarkable results in actively switching development engines, increasing digital investment, and deepening the integration of digital reality.

Ma Huateng, Chairman of the Board and Chief Executive Officer of Tencent, said at the results conference: "2021 is a challenging year, we have actively embraced change and implemented measures to strengthen the company's long-term sustainable development, but it has affected the slowdown in revenue growth. Despite the financial impact, we continue to make strategic progress in our business, and China's Internet industry is structurally moving towards a healthier model, returning to its roots centered on user value, technological innovation and social responsibility. We are actively adapting to the new environment, reducing costs and increasing efficiency, focusing on key strategic areas, and striving for long-term sustainable growth. ”

In addition, Martin Lau, president of Tencent, also responded for the first time to the recent rumors of organizational optimization: "The Internet industry is undergoing structural transformation, and we hope to actively embrace change when the entire industry undergoes fundamental changes and keep the overall organization more robust." ”

Embrace change and focus on strategic business

Previously, there was news that Tencent's external recruitment plan was tightening, and some business groups had opened "optimization". Martin Lau responded, "At present, the Internet industry is encountering structural challenges and changes, and Tencent, as a participant, will also take the initiative to adjust." In the past, the industry was competition-driven and invested heavily; now, compared with short-term gains, we pay more attention to long-term business development and invest more healthily, especially in the optimization of marketing costs, operating costs and labor costs. We have also optimized the cost of our loss-making businesses in order to maintain healthier growth. ”

He said that Tencent has always been a company that actively embraces change, and the company has always adhered to an entrepreneurial mentality and continued to optimize its organization according to social development and business needs. In the future, Tencent will focus on key strategic areas based on the principle of health and sustainability, allocate personnel in long-term value business, and continue to introduce core scientific and technological talents and outstanding fresh graduates, and it is expected that personnel will continue to grow in 2022.

It is worth noting that the development and expectations of Tencent's important business segments have been explained by Tencent's management.

For the advertising business sector, Tencent's management expects to pick up at the end of the year. At present, in the process of economic downturn, education and training, games, real estate and other industries have suffered blows, and the growth of new industries takes time, and it takes time to digest the requirements of more healthy development of supervision.

Regarding the game sector, Martin Lau said that regulators currently need the entire industry to increase investment in the juvenile protection system. Tencent disclosed in its financial report that in the fourth quarter of last year, the proportion of domestic minors' game time fell to 0.9%, the total length fell by 88% year-on-year, the proportion of game flow fell to 1.5%, and the total flow fell by 73% year-on-year.

In the financial technology module, Tencent's management said that it will uphold regulatory compliance requirements and continue to attach importance to risk control. Martin Lau pointed out, "We have always been positive about the cooperation of financial institutions, support the sustainable development of financial business, and will continue to adhere to the bottom line in the future." At present, financial regulatory requirements are necessary for the entire industry, and we will actively cooperate with regulatory requirements and believe that regulatory measures will have a driving effect on the long-term healthy development of the industry. ”

In addition to the above-mentioned major business segments, Martin Lau also stressed that cost control will be strengthened for cloud, long video and other services, so as to open source and reduce expenditure and maintain more healthy growth. However, in the future, Tencent will continue to focus on international games, SaaS, video numbers and other businesses, and believes that they will have good growth in the future.

While emphasizing cost control, Tencent insists on increasing its continuous investment in research and development, highlighting the great importance it attaches to investment in science and technology. According to the data, in 2021, Tencent's R&D investment increased by 33% to 51.8 billion yuan, which has doubled compared with 2018. In 2021, the number of Tencent R&D personnel increased by 41% year-on-year, and the R&D team continued to grow. More than 6,000 new R&D projects were added, an increase of 51% over 2020. In the past three years, Tencent's total R&D investment has exceeded 120 billion yuan.

Pay attention to the full true interconnection, increase the investment in the integration of digital reality

"Investment Times" noted that relying on scientific and technological innovation capabilities and long-term investment in the field of digital new infrastructure, Tencent's digital real integration continues to accelerate, and the economic income of tencent based on service B-side has also become Tencent's new growth engine, accelerating the company's shift from virtual to real and low speed.

According to the latest financial report, in the fourth quarter of 2021, the revenue of Tencent's financial technology and enterprise services sector increased by 25% year-on-year to 47.958 billion yuan, surpassing the online game sector for the first time and becoming the business segment with the largest contribution to Tencent's revenue.

Ma Huateng pointed out that since 2015, Tencent has begun to integrate the Internet and the industry, and in 2018, the company officially embraced the industrial Internet after the 930 structural adjustment. In this process, Tencent is positioned as a digital assistant, providing digital services for all walks of life.

In his view, the concept of the current hot meta-universe, Tencent is more from the perspective of digital-real integration, rather than pure virtual, more concerned about the concept of the true Internet.

At present, the chips and cloud resources developed by Tencent continue to provide services for industrial partners, and the integration of the real economy and the digital economy is starting. Among them, Tencent's new three masters: enterprise WeChat, Tencent conference, Tencent documents, etc., can improve the efficiency of enterprise and customer connectivity, Tencent will give full play to the advantages of SAAS, to help industry partners jointly help the real economy.

In addition, Tencent continues to increase its support for small and medium-sized enterprises. In terms of payment, Martin Lau introduced that the payment rate in the Chinese market has been at a very low level compared with the United States and Europe. In this context, Tencent is also continuing to increase the support of small and medium-sized micro businesses.

In April 2021, Tencent launched the "National Small Shop Fireworks Plan" (Pyrotechnics Plan 2.0), which will add 10 billion yuan of capital and resources within three years to help online and offline small and micro merchants to achieve increased revenue and rate reduction.

On September 1, 2021, Tenpay's commercial payment sector took measures to reduce fees for many small and micro enterprises, and reduced the operating costs of the entire small and medium-sized enterprises by providing free QR code collection security guarantees and preferential operating materials.

In the view of Martin Lau, "the Internet industry has undergone very huge changes, the industry is in pain, when we take the initiative to embrace the changes and carry out a series of optimization actions, Tencent will be more robust, the business will be more healthy development, we are full of confidence in the future." ”