Tencent Sees China Internet Growth Slowing

The operator of China’s biggest instant messaging service says its growth has slowed due to “increased scale and reduced growth rate in the internet market in China“.

The notion China’s internet market may be slowing is surprising, and new.

But it may be more a symptom of Tencent’s own place in the market – whilst its IM service added only 4.1 percent more users during Q2, it now has 701.9 million – that’s 85 percent of China’s population (but nearly twice the size of the country’s online population). In other words, Tencent’s IM is so popular, there’s not much room left for it to grow.

Tencent’s microblog efforts, however, are booming. Registered users grew 60 percent in that quarter alone to 233 million after greater integration with the QQ.com portal and marketing.

Tencent’s Q2 profit of 2.43 billion yuan came in a fifth higher than last year’s, on 47 percent higher revenue of 13 billion yuan. But the profit was below analysts’ expectations.

Tencent’s advertising income grew slower than it did last year, when it benefitted from the World Cup and Expo. It has committed to make heavy investments despite the added costs putting its profit margin under pressure.

We have entered a new investment phase … (which) will result in a significant cost increase in areas such as revenue sharing with partners, content acquisitions, research and development as well as marketing,” the company said.

“As these investments will take time to generate return, our margins will inevitably be affected over the short to medium term. Nevertheless, we believe it is crucial for us to invest
significantly for the future…

“We remain dedicated to making investments in strategic new product areas including microblog, e-commerce, search, online security, online video and international expansion.