Tencent Shows It's Rough Even After the Storm Clears

(Bloomberg Opinion) -- Tencent Holdings Ltd. just posted the best Covid-19 quarter that investors could hope for.

Revenue from gaming rose the most in years, video subscriptions climbed, and even advertising grew as consumers spent far more time on Tencent’s suite of apps.

One weakness for the Chinese internet giant came from the fintech division. Ironically, the business that helps consumers and merchants move payments from physical to digital suffered at precisely the time that physical commerce ground to a halt — because offline transactions and cash withdrawals fell. Its cloud business also suffered as new project deployment was delayed amid the shutdown.

Yet management's own statement about the outlook serves as a word of caution.

“We see several likely industry-wide headwinds, including consumer time spent online normalizing which will lead to lower advertisement impression growth, online services advertisers adjusting their customer acquisition budgets to reflect revised life time value assumptions, and multinational brands sharply reducing their global marketing budgets as they faced the pandemic in their home markets.”

As Chinese consumers get back to work in physical offices, they’re likely to spend less time playing games and chatting with friends. And as I’ve written before, even China’s domestically-focused internet companies aren’t going to be able to escape the severe economic slowdown that will sweep the world.

In terms of public-health and consumer habits, China may be returning to normal. But economically, Tencent and its peers like Alibaba Group Holding Ltd. and Baidu Inc. are really only sitting in the eye of the storm, where the weather has calmed but dark clouds still loom.

Even if restaurants reopen and cinemas start accepting patrons, the rebound could be limited if corporate revenues fall, salaries get cut, or workers laid off. China’s government is making efforts to head off that scenario, but there’s a chance that Beijing may even ax its own economic growth target when leaders meet later this month.

The lesson here for companies and leaders around the world is that there will be periods when normality exists and spending returns, but that doesn’t necessarily mean all is well and the storm has passed.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

©2020 Bloomberg L.P.