Alibaba, Baidu, Didi, Tencent: regulations affect tech companies

Beijing The Chinese Internet group Tencent has recently grown more slowly than it has since going public in 2004. The figures for the fourth quarter, which Tencent presented on Wednesday, show how badly regulations are affecting China’s tech companies. The online retailer Alibaba had previously reported the weakest growth since 2014.

Tencent’s revenue increased by just 8 percent between October and December. Revenues from online advertising declined for the first time in the company’s history. In the important games segment, business on the domestic market practically stagnated. In 2021, the authorities severely restricted online playtime for young people. Tencent President Martin Lau spoke of a “difficult year”.

The Chinese supervisors introduced a whole series of new laws in the past year. The government wants to regulate the platform companies more closely and limit their market power. Among other things, the procedure is intended to limit data collection frenzy and anti-competitive practices and ensure the stability of the financial system. Lau was self-critical in that the industry had pushed ahead with “ruthless expansion” for years.

The ongoing speculation about mass layoffs shows how dramatic the situation in the sector is. Last week, the Reuters news agency reported with reference to insiders that Alibaba and Tencent want to part with ten to 15 percent of their workforce in some business areas. The transport agent Didi is also planning to cut jobs.

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At the end of last year, Alibaba had more than 250,000 employees, and Tencent employed more than 94,000 people. Although staff will be reduced in some areas, the total number of employees is expected to increase in 2022, according to the Tencent balance sheet press conference. In addition, share prices have fallen significantly over the year. The Handelsblatt has analyzed how the large Chinese tech companies are affected by the regulation.

Alibaba: Lost $500 billion in market value

The Group’s fiscal year ends on March 31. Most recently, the company reported the weakest growth since the IPO in 2014 for the months of October to December. In the e-commerce sector, which accounts for around 85 percent of sales, he is feeling the growing competition from competitors such as JD.com and Pinduoduo.

Alibaba cited high losses in the market value of its holdings as the main reason for the more than 74 percent drop in profits in the important quarter between October and December. The financial subsidiary Ant, in which Alibaba still holds 33 percent, was briefly prohibited by the authorities in November 2020 from the planned mega IPO. It has since been restructured at the behest of Chinese financial regulators to reduce risk.

But operating profit also fell by more than a third in the last quarter of 2021. CEO Daniel Zhang emphasized that in future there will be a greater focus on retaining customers instead of growing through acquisitions. According to calculations by the financial data service provider Bloomberg, the formerly most valuable Chinese company has lost almost $ 500 billion in market value since the start of the regulations.

Baidu: Demand from advertisers falls sharply

The search engine operator suffers less from tech regulation than other big platform companies. However, Baidu is feeling the effects indirectly. Demand from key advertisers in the gaming and education industries has fallen sharply as these areas have been subject to strict regulations.

Nevertheless, the online advertising business, which accounts for almost 60 percent of Baidu’s sales, grew by 12 percent last year. The video platform Iqiyi, which accounts for a further 30 percent of the revenues, also increased slightly. At the balance sheet press conference in early March, however, Baidu boss Robin Li warned that the company would not grow as strongly in early 2022 as it did at the end of last year.

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Despite growth over the past year, profit has collapsed by more than 50 percent compared to 2020. Similar to Alibaba, this is due to the high value losses of investments, which are shown with their respective market values ​​in the income statement. Operating profit, on the other hand, rose by around 36 percent.

Didi: US IPO angers regulators

The transport service provider is most affected by the tougher course taken by the supervisory authorities. The company is not one of the dominant platform groups. But with its IPO in the US last summer, Didi has become the focus of the cyber security regulator CAC. She accuses Didi of endangering national security through the US IPO because sensitive data could fall into the wrong hands.

As punishment, the Didi app was removed from the Chinese app stores. The company has not been able to win any new customers on its home market to this day.

Didi has not yet presented any figures for the past financial year, let alone given a date for them. But the latest available, unaudited figures from the third quarter of 2021 show how sales shrank. The loss added up in the first nine months to the equivalent of around 7.8 billion dollars.

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There is currently no sign that the supervisors will let go of the company. The taxi service provider apparently has to postpone its planned IPO in Hong Kong and thus also the delisting in New York. The Bloomberg news agency reported in mid-March. Accordingly, the cyber security authority still has objections because the protection of sensitive data is not guaranteed.

Tencent threatens split and record fine

For the year as a whole, the social media conglomerate was able to increase its sales by 16 percent. In the gaming business, which accounts for more than 50 percent of revenues, the group grew by ten percent. The fintech area, especially around the payment app Wechat Pay, grew by almost a third and now accounts for 31 percent of sales.

However, according to media reports, financial regulators could ask Tencent to spin off Wechat Pay into a separate financial holding company. Tencent President Lau confirmed talks with regulators on the matter at the press conference. In addition, according to a report, Tencent faces a record fine for alleged violations of money laundering regulations in the payment app.

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Despite regulatory headwinds, Tencent was able to increase its net profit by 40 percent last year. However, the plus comes, among other things, from the sale of shares in the online retailer JD.com and other investments. Adjusted operating profit increased by only seven percent.

Hoping for the end of the wave of regulations

Recent statements by the state leadership have recently given rise to hopes on the stock markets that the wave of regulations in China will come to an end. The government recently called on the authorities to complete “corrective work on large platform companies as soon as possible” and introduce uniform and predictable regulation.

Nevertheless, industry experts remain skeptical. In a widely shared post on the short message service Weibo it said: There can only be talk of an all-clear when the Didi app is available again in the store, the Alibaba financial subsidiary Ant is allowed to resume its stock market plans and the Tiktok parent company Bytedance is also permitted received for the IPO.

More: China stocks continue to recover strongly – but investors remain skeptical.

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