Revenue missed expectations by 4%, earnings per share dropped by more than 50% and operating margin narrowed by 15 percentage points. Wherever you look, Tencent Holdings Ltd.'s first-quarter earnings were a mess after citywide lockdowns in China and slowing consumer spending crimped sales of ads and games. But quarterly numbers for Tencent and other Chinese technology giants might not matter so much anymore because bigger forces are at play.
Continued restrictions on Covid-19 in places like Shenzhen and Shanghai are hurting the economy, while a prolonged crackdown on technology companies including Tencent, Alibaba Group Holding Ltd. and Didi Global Inc. is hitting those companies hard. Yet President Xi Jinping can't accept an economic slowdown and will do whatever it takes to juice growth.
That means an all-out infrastructure push, cuts in mortgage rates and better financing for small businesses. More important, it includes easing up on big tech, with Beijing deciding tech platforms ought to be supported.
For more than a year, various regulators targeted individual tech sector categories including e-commerce, financial services, games and ride-hailing. But there have been gradual signs that China's big tech firms may be out of the doghouse. Last month, the Politburo — the central decision-making body of the Chinese Communist Party — said it would encourage the healthy growth of internet platform companies as part of a broader pledge to deliver on economic targets. Those signals lifted China's tech shares a few weeks ago.
As always, the devil is in the details. But there have been few such details, giving executives, economists and investors reason to tread carefully as they try to guess what the government has in store. Notably, that post-Politburo rally gave way to more pessimism, and shares retreated.
Yet a clearer sign came just this week when Vice Premier Liu He — Xi Jinping's most senior economic aide — said the government would support the development of digital economy companies and their public listings. Significantly, those words of encouragement were spoken after a symposium attended by the chiefs of some of the country's most prominent technology players including Baidu Inc., Qihoo 360 Technology Co. and NetEase Inc.
Once again, Liu's comments — reported by state media — lacked particulars. This absence of specifics may not be a mistake. It's possible that Beijing hasn't quite worked out how it will aid technology companies but sees the importance of sending positive signals while it irons out the details.
That leaves everyone else reading the tea leaves.
Thankfully, company executives are getting pretty good at translating the signs, with Tencent on Wednesday giving the best clues yet as to how it will play out. The owner of the enormously popular WeChat messaging and payments app should be seen as a bellwether because it's the first top Chinese technology company to face investors since the government signaled it would ease up the pressure.
According to Tencent President Martin Lau, the government intends to "complete rectification actions on the platform economy, to implement normalized deregulation, and also to introduce specific measures to support healthy and compliant growth of the platform economy," in that order. Put simply: Mete out punishments and tighten rules, then get China's disparate regulators aligned, before coming up with ways to boost technology companies.
The realignment could take time, Lau indicated, and would come step by step. That means an uptick in revenue could be coming, although an exact time frame wasn't given. Still, it's more than what was known a month ago and suggests that Tencent believes the company has hit the bottom in terms of negative impact from the crackdown.
This is not to say there are no stormy waters ahead. The impact of Covid lockdowns, including supply chain disruptions, a global economic slowdown as well as tightened rules on games and advertising will still hamper revenue and earnings. But at least we're getting a better indication of what to expect. In these uncertain times, such clarity is more valuable than numbers.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News. @tculpan
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.