Tencent May Be Too Awesome For Its Own Good

(Bloomberg Opinion) -- Tencent Holdings Ltd. just turned in an impressive quarter, reporting record net income that beat estimates by the most in two years. But the timing is a bit unfortunate.

Having ridden through the Covid-19 storm relatively unscathed, the Chinese games and social media giant must now navigate the country’s antitrust regulators. So perhaps this isn’t the best moment to show how savvy and powerful it is.

Shares of Tencent and its peers including Alibaba Group Holding Ltd., Meituan and JD.com Inc. took a battering this week after Beijing released a much-anticipated draft of new anti-monopoly laws. Leveraging user data or subsidizing services at below cost are among the practices under scrutiny in the proposed regulations.

So far it’s generally believed that Alibaba, its fintech affiliate Ant Group Ltd., and Meituan are among the most likely to hurt from those rules, as they’re currently proposed. But Tencent is definitely on the radar. Its ownership of WeChat makes it the nation’s most dominant instant-messaging service, and it shares a virtual duopoly with Ant in the mobile-payments business. Traditionally an online and mobile games provider, the company has been tweaking its business model to leverage two decades of accumulated knowledge and consumer data to push into new areas such as advertising, content, and commercial services. It celebrated that move at the top of its earnings press release Thursday. 

This quarter marked the second anniversary of our strategic organisation upgrade, which was intended to enhance our strength in Consumer Internet and extend our presence to Industrial Internet.

To investors, “enhance our strength” is exactly the kind of phrase you want to hear from management. But such terms may also catch the eye of regulators who are intent on hunting down and reining in monopolistic businesses.

It’s hard to argue that the company has used its unrivaled power in social media — particularly via the WeChat and QQ messengers — to deliver highly-targeted ads to consumers. This close connection with customers has in turn helped drive payment volumes at its fintech business by 30% and boost the number of wealth management clients by 50%. 

Leveraging these cross-platform synergies is what it ought to do, and it’s precisely why investors have rewarded the stock with a 75% rise over the past 12 months. But Beijing, already unhappy with rival Ant’s fintech business model, may not be happy that Tencent is publicizing such impressive feats.

Management could well make the case that its widening profits in services, fintech, and advertising are purely organic, not the product of any monopolistic muscle-flexing. It may also help that most of its revenue comes from the more pedestrian business of online games, where solid titles and distribution matter more than consumer data or pricing power. 

But that may not matter. As Beijing starts hunting antitrust violators, Chinese internet companies would be wise to not crow too loudly.

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.

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