Tencent employees queue up to get red envelopes from Tencent founder Pony Ma Huateng outside the company's headquarters.
Zou Bixiong—VCG via Getty Images
By Aaron Pressman and Clay Chandler
March 20, 2019

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Over the last two weeks, the global business press has invested great time and effort pondering the implications of Mark Zuckerberg’s “pivot to privacy.” (That includes Fortune; don’t miss Michal Lev-Ram’s insightful cover story about Facebook’s “about face“.) In Data Sheet and CEO Daily, Adam and I have argued that Zuckerberg’s pivot is an effort to remake Facebook in the image of Chinese tech colossus Tencent Holdings.

Amid all the speculation about what may (or may not) be going on under those new Frank Gehry-designed rooftop gardens in Menlo Park, it’s easy to overlook the fact that, Tencent (which operates out of two skyscrapers in Shenzhen that are as vertical and austere as MPK21 is horizontal and welcoming) has been executing a pivot of its own—one that, in many ways, is more radical than anything yet contemplated by Mark and Sheryl.

Tencent announces fourth-quarter financial results here in Hong Kong Thursday. It won’t be pretty. The Wall Street Journal reports that analysts expect Tencent’s earnings for the three months to December 31 plunged to $2.8 billion, down 11% from the same quarter the previous year. That would be Tencent’s biggest quarterly decline a decade. Ahead of the earnings report, Bloomberg and the South China Morning Post, citing anonymous sources, said the Shenzhen-based company plans to layoff 10% of middle and senior management as part of a sweeping corporate reorganization.

But Tencent’s travails go far beyond a failure to clear management deadwood. The company’s biggest problem is that it is too dependent on revenue from online games. That was considered a strength until last March when China’s regulators—fearful of rising rates of online addiction and the deteriorating eyesight of the nation’s youth—slapped a nine-month moratorium on new game releases. Beijing lifted the ban in December, but Tencent has won approval for fewer than a dozen games since.

Thus Tencent’s scramble to diversify. Last year the company embarked on a frenzied investment spree, adding 163 companies to its already far-flung portfolio. The deals included live-streaming platforms, online education, e-commerce players, and property service providers scattered across markets including Southeast Asia, the U.S., Germany, Brazil and Nigeria.

Meanwhile Tencent is looking for new ways to leverage its most valuable asset: WeChat, a “super-app” the company rolled out in 2011 as messaging service then built into one of the world’s largest user bases. WeChat, which is the bit of Tencent Zuckerberg hopes to emulate, offers an all-encompassing platform for connecting to customers. It’s also a massive data vacuum, designed to suck up and analyze all manner of information about its users.

So far investors are encouraged by Tencent’s pivot. Shares of the company are still 22% below the all-time high they reached last January—but are up nearly 50% since hitting an all-time low on October 30.

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The concept of the super-app is generally credited to China. But in an article in the next issue of Fortune, I argue that the place where super-apps are evolving the most rapidly is Southeast Asia. There, two scrappy and ambitious startups—Singapore-based Grab and Jakarta-based Go-Jek—are locked in battle to become the region’s most powerful provider of on-demand services. The story is live on Fortune.com as of this morning.

Clay Chandler


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