The two Chinese tech giants, Alibaba and Tencent are experiencing sluggish sales for the first time after regularly talking to investors about innovation and new products in Financial Report Announcement meetings. However, the meeting turned to another topic – how to reduce costs.
Recently, Alibaba and Tencent announced their second-quarter results.
According to 199IT, Tencent’s second-quarter financial report showed the company’s sales of 134 billion yuan ($19.5 billion), down 3% from the same period last year. According to International Financial Reporting Standards (IFRS), Tencent’s second-quarter net profit was 18.6 billion yuan (about $2.7 billion), down 56% year-on-year.
This is the first time since Tencent went public in 2004 that sales had fallen; until the end of last year, Tencent had posted at least double-digit sales growth every quarter.
The same goes for Alibaba, which reported flat growth for the first time in the second quarter.
According to Sino Academy, Alibaba released its second-quarter financial report in 2022 on August 4. The group’s second-quarter sales was 205,555 billion yuan ($30.05 billion), on par with the same period last year.
According to CNBC analysis, these once free-wheeling and high-flying tech giants are no longer growing.
CNBC said that Alibaba and Tencent have felt the effects of a COVID-induced economic slowdown in China. And it is hitting everything from consumer spending to advertising budgets. The tightening of domestic technology regulations in areas from antitrust to gaming over the last year and a half is also weighing on results. As revenue remains under pressure, both giants have looked to be more disciplined in their approach to spending.
Tencent CEO Ma Huateng told analysts during an online conference on Wednesday, August 17, “During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses.”
Liu Chiping, chairman of Tencent, said the company exited non-core businesses such as online education, e-commerce, and game live streaming. The company also tightened marketing spending and cut low areas of investment such as user acquisition. Tencent’s selling and marketing expenses fell 21% year-on-year in the second quarter.
At the same time, Alibaba flagged its cost cutting drive earlier this year and continues to push forward with it.
“In the coming quarters and the remainder of this fiscal year, we will continue to pursue the strategy of cost optimization and cost control,” Toby Xu, chief financial officer at Alibaba, said during the company’s August earnings call.
Winston Ma, an adjunct professor of law at New York University School of Law, told CNBC via email, “For them (Alibaba and Tencent) to go back to [the] earnings growth path, cost optimization only is not enough. They need to find new growth drivers.”
Sina reported that, in the first quarter report, Tencent states the number of employees as 116,200. By the end of the second quarter, Tencent’s total number of employees was down to 110,700. An overall decrease of more than 5,500 people. Meanwhile, Alibaba laid off 9,241 employees in the three months to June, according to Sohu.