Tencent profit grows after a year of aggressive cuts

China’s internet industry is undergoing a major mood shift amid economic headwinds, a slowdown after years of frantic growth and heightened regulatory scrutiny. Companies of all sizes are responding to the new normal by cutting costs, such as shrinking their workforce.

Throughout the past year, gaming and social networking giant Tencent has cut as many as 4,000 jobs across various departments. In a rare town hall meeting late last year, the firm’s CEO Pony Ma lashed out at the staff for blindly following rivals into non-core businesses and lacking a sense of urgency to survive, reported a Chinese news outlet. Cost-saving would continue to be the company’s priority, the executive said.

In its earnings report today, Tencent proved that its new strategy of frugality began to pay off. The firm’s profit from the fourth quarter grew 12% year-over-year, while its net margin increased to 74% from 66% last year.

Its cloud and enterprise businesses segment, a new growth driver, “further reduced loss-making activities and optimized costs, while focusing on healthier-margin self-developed PaaS solutions, such as video cloud and database.”

One of Tencent’s expansion strategies over the years was to pour money into promising but uncharted territories, from short videos, an area dominated by TikTok’s sibling Douyin, to web3. Huanhe, the company’s shot at creating an NFT marketplace, shut down only after a year.

Despite its improved profit from the last quarter, the company recorded a drop in annual revenues for the first time on record. Tencent, the world’s largest video game publisher, has been struggling with China’s score of new gaming regulations, including restrictions on underage players. For years video games were Tencent’s most important cash cow, but that segment was overtaken by its new revenue driver, the fintech and enterprise services arm, in 2022.