Tencent pays $20 billion Meituan stake as dividend

(Bloomberg) – Tencent Holdings Ltd. pledged to distribute the majority of its shares in food delivery giant Meituan to investors as China’s social media leader ramps up plans to reduce its extensive holdings in the world’s largest internet industry.

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Tencent, which had announced plans to sell its stake in online retailer JD.com Inc. will distribute more than 958 million Class B shares in Meituan as a special dividend to existing shareholders. Tencent announced the move as it reported revenues fell for the second consecutive quarter, underlining the extent to which China’s deteriorating economy is hurting its largest private companies.

The decision marks another milestone in Tencent’s evolution from a sprawling internet empire with investments in much of China’s tech sphere to a more focused, cost-conscious gaming and social media operator. The departure from JD and now much of Meituan comes after Xi Jinping imposed a series of devastating restrictions on the industry in 2021, including restrictions on playing time and content.

Tencent executives had previously denied that it was planning to sell its share of Meituan, China’s food delivery leader. The share to be distributed, worth approximately HK$155 billion ($19.9 billion), represents approximately 91% of Tencent’s Class B stake. In addition to JD and Meituan, Tencent also owns part of Kuaishou Technology, Didi Global Inc. and Bilibili Inc.

Click here for a live blog of the earnings.

The move marks another withdrawal for Tencent, which has partnered with Alibaba Group Holding Ltd. held sway over much of China’s technology sector.

China’s internet industry has since made peace with a new era of moderate growth, with the focus shifting to improving profitability from the pursuit of market share after Beijing’s crackdown wiped out more than $1 trillion from their combined market value by 2021. While regulators have eased their campaign against technology, the once freewheeling industry remains saddled with weak consumer spending and strict Covid restrictions.

Tencent’s revenue fell 2% to 140.1 billion yuan ($19.8 billion) in the September quarter, compared to the average forecast of 141.4 billion yuan. Net profit amounted to 39.9 billion yuan, compared to the estimate of 25.2 billion yuan. Shares of Prosus, Tencent’s largest shareholder, rose in Europe.

Chinese tech stocks recovered some of their losses this month, after the Communist Party began to pull out of its Covid-Zero playbook and the Biden administration offered more incentives to cooperate. Xi Ji’s shift on those fronts, coupled with perceptions of a renewed focus on reviving the world’s No. 2 economy, fuel speculation that Beijing will begin unleashing the private sector.

Tencent remains vulnerable to macroeconomic headwinds. Tighter global marketing budgets and growing competition from TikTok owner ByteDance Ltd. cutting digital advertising profits. In cloud computing, revenues fell this year as the company works to cut onerous contracts.

In its core video game business, Tencent has yet to find its next big hit to take up the backlog of Honor of Kings, first released in 2015. Only one Tencent game has been approved for domestic launch since Beijing’s censorship in April resumed licensing. .

Tencent co-develops with Capcom Co. a new mobile game for the popular Monster Hunter franchise from the Japanese studio, in an attempt by China’s premier game developer to remake itself for the international market.

The company’s appetite for foreign gaming assets is increasing at a time when it is shedding other assets and spending more wisely at home. In September, the Shenzhen-based company spent about $300 million to double its stake in Ubisoft Entertainment SA.

While investors have applauded Tencent’s recent cost cuts, some are pushing for quicker revenue solutions than long-term betting odds. The focus is on growth at WeChat’s short video feed, which has yet to fully monetize its content with e-commerce and ad offerings.

–With assistance from Peter Elstrom, Vlad Savov, Jane Zhang, Sarah Zheng, Jennifer Ryan, and Ville Heiskanen.

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