over 1 year ago • 3 mins
Chinese internet giant Tencent posted its first ever drop in quarterly revenue on Wednesday.
What does this mean?
Chinese government crackdowns were still giving Tencent a headache last quarter. Sure, regulators removed the nearly year-long freeze on new game approvals in April, but they’re still yet to give Tencent the go-ahead for a single title this year. That’s left it relying on existing games for growth, which might be why there wasn’t any: sales from its domestic gaming business shrank 1% from the same time last year. Tencent’s online ad revenue fell by a record 18% too, as China’s economic slowdown gives cautious businesses the heebie-jeebies. All that might be why Tencent’s overall revenue fell a worse-than-expected 3%, and why its profit collapsed 56%.
Why should I care?
For markets: Tencent breaks the internet.
Tencent once had a lot of sway over the Chinese internet sector via its stakes in hundreds of startups and publicly traded firms. But the country’s government has been working since late 2020 to limit the influence of tech industry leaders, and Tencent has in turn been reducing its ownership in companies like JD.com. And it looks like Meituan might be next, with reports emerging this week that Tencent wants to sell a portion of its $24 billion stake in the food delivery giant. Investors, then, have started abandoning some of its other investments in expectation that the same will happen to them, sending down the stocks of both grocery platform Pinduoduo and short video app Kuaishou.
The bigger picture: Tencent has fingers in many pies.
Tencent will use some of that spare energy to build out its international gaming and cloud software segments, as well as WeChat Video – a TikTok-style feed available to WeChat’s over 1 billion users. It’s also betting on the metaverse, revamping its social app QQ with 3D avatars and hiring developers to make open-world experiences.
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Data out on Wednesday showed that UK inflation hit double digits for the first time in 40 years last month.
What does this mean?
The prices of consumer goods and services were 0.6% higher last month than the month before, which was especially unusual given that prices generally fall in July. It was mundane things like bread, meat, and dairy products that contributed most to the increase, culminating in the highest food inflation in more than 20 years. Chaos at the country’s airports just made matters worse, with a restricted number of flights pushing up the cost of going on vacation. All in all, consumer prices were 10.1% higher in July than they were the same time last year – well above June’s 9.4% and economists’ forecasted 9.8%.
Why should I care?
For markets: A recession is a given.
Economists think Wednesday’s data will encourage the Bank of England to hike interest rates by another 0.5% next month, with traders betting they’ll be more than twice as high by May next year. That could weigh heavily on economic growth in the next few years, which might be why investors have been ditching their short-term government bonds. That selloff pushed their yields even higher than long-term bonds, which usually pay out more given the added risk of holding an asset for longer. This phenomenon is known as a “yield curve inversion”, and it’s historically preceded recessions with alarming reliability. And when you consider that this is the biggest inversion since the financial crisis, a downturn seems all but inevitable.
The bigger picture: Europe’s teetering.
Economists think a recession is more likely than not in Europe too, as energy shortages are tipped to push inflation even higher. Gas prices are now ten times higher than normal, and metal production facilities are at the stage where they’re closing their doors. That’s only going to cause more shortages and drive prices higher still.
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