Tencent to distribute $20bn stake in Meituan as dividend

Bloomberg

Tencent Holdings Ltd. pledged to distribute the majority of its shares in meal delivery giant Meituan to investors, as China’s social media leader ramps up plans to reduce its extensive holdings across the world’s largest internet industry.
Tencent, which had announced plans to pare its stake in online retailer JD.com Inc., will dole out more than 958 million Class B stock in Meituan
as a special dividend to existing shareholders. Tencent announced the move as it reported revenue shrank for the second straight quarter, underscoring the extent to which China’s worsening economy is hurting its biggest private corporations.
The decision marks another milestone in Tencent’s evolution from a sprawling internet empire with investments across much of China’s tech sphere to a more focused, cost-conscious gaming and social media operator. Its exit from JD and now much of Meituan comes after Xi Jinping imposed a series of withering curbs on the industry in 2021, including restrictions on play time and content.
Tencent executives had previously denied it intended to sell its slice of Meituan, China’s leader in food delivery. The stock to be paid out, valued at about HK$155 billion ($19.9 billion), marks about 91% of Tencent’s Class B stake. Apart from JD and Meituan, Tencent also owns part of Kuaishou Technology, Didi Global Inc. and Bilibili Inc. And this year it sold about $3 billion worth of shares in Southeast Asia’s biggest
internet company, Sea Ltd.
The move marks another retreat for Tencent, which along with Alibaba group held sway over much of China’s tech sector.
Beijing has punished the country’s tech giants for anti-competitive behavior, including maintaining closed ecosystems that favor certain companies at the expense of others. The JD and Meituan dividends may buy goodwill with the government, which has pushed for the dismantling of such barriers and for tech firms to share the wealth.
China’s internet industry has made peace with a new era of sedate growth, shifting focus to enhancing profitability from chasing market share after Beijing’s crackdown wiped more than $1 trillion off their combined market value in 2021. While regulators have eased up on their campaign against tech, the once-freewheeling sector remains saddled by weak
consumer spending and strict Covid restrictions.
Tencent’s revenue falls 2% to 140.1 billion yuan ($19.8 billion) in the September quarter, compared with average projection for 141.4 billion yuan. Net income came in at 39.9 billion yuan, versus the 25.2 billion yuan estimate. Shares in Prosus NV, Tencent’s largest shareholder, rise more than 2% in Europe while Naspers Ltd. was up as much as 5%.
Chinese tech shares recovered some of their losses this month, after the Communist Party began pulling back from its Covid-Zero playbook and offered more incentives to the Biden administration to work together. Xi’s shift on those fronts, coupled with perceptions of a renewed focus on reviving the world’s No. 2 economy, is spurring speculation that Beijing will begin to unshackle the private sector.
But Tencent remains vulnerable to macroeconomic headwinds. Tighter marketing budgets worldwide and growing competition from TikTok-owner ByteDance are cutting into digital advertising profits. In cloud computing, revenue falls this year as the firm works to cut loss-making contracts.
In its core video gaming operations, Tencent has yet to find its next big hit to take up the slack from Honor of Kings, first released in 2015. Only one Tencent game has been approved for domestic launch since Beijing’s censors resumed handing out licenses in April.
The company’s appetite for foreign gaming assets is increasing at a time when it is divesting other assets and spending more judiciously at home.
Tencent is co-developing a new mobile game with Capcom Co. for the Japanese studio’s popular Monster Hunter franchise, in a bid by China’s premier game developer to remake itself for the international market.
In September, the Shenzhen outfit spent roughly $300 million to double its stake in Ubisoft Entertainment SA.
While investors have cheered Tencent’s recent cost-cutting, some are clamoring for faster fixes to its top line than long-term gaming bets. Attention is on growth at its WeChat short video feed, which has yet to fully monetize its content with e-commerce and advertising offerings.