This July 22, 2022 file photo shows that visitors gather at the booth of the Tencent Cloud during an expo in Fuzhou, Fujian province. Tencent Holdings reported a fall in its profit as last year's mainland game revenue decline dragged down the company’s performance while the pandemic affected its cloud business. (PHOTO / VCG)

Chinese mainland tech giant Tencent Holdings reported a fall in its profit as last year's mainland game revenue decline dragged down the company’s performance while the pandemic affected its cloud business.

The company said its profit attributable to equity holders dropped to 188.2 billion yuan ($27.33 billion) for the year ending December 2022, a 16 percent decline from the previous year’s 224.8 billion yuan, but better than the median forecast of 108.3 billion yuan. 

We are investing in out artificial intelligence capabilities and cloud infrastructure to embrace foundation models. Looking ahead, we will continue to seek to create user value, commercial value and social value via technology and innovation. 

Ma Huateng,

Tencent Chairman and Chief Executive Officer

The company’s non-IFRS profit attributable to shareholders decreased 7 percent to 115.6 billion yuan. Revenues dipped 1 percent to 554.5 billion. Tencent reported a final dividend of HK$2.4 ($0.30) per share, an increase of 50 percent from the previous year.

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The company said its commercial payment business was temporarily impacted by COVID-19 outbreaks in the fourth quarter of 2022, resulting in a significant slowdown in volume growth. It further reduced loss-making activities and optimized costs, while focusing on self-developed video cloud and database solutions which can enjoy higher margins.

“We are investing in out artificial intelligence capabilities and cloud infrastructure to embrace foundation models. Looking ahead, we will continue to seek creating user value, commercial value and social value via technology and innovation,” Tencent Chairman and Chief Executive Officer Ma Huateng said in a statement on Wednesday.

The company is applying AI capabilities to industrial scenarios such as industrial quality inspection and intelligent manufacturing, but also to other scenarios such as medical care, elderly care, biodiversity protection, and agriculture. Last year, the company’s annual research and development expenditure reached 61.4 billion yuan. Since 2019, Tencent’s cumulative R&D expenditure has exceeded 182.6 billion yuan.

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A research report note from Jefferies Hong Kong said that the future profit performance of Tencent will hinge on the following factors: Consumer behavior after the reopening of the mainland economy; domestic games industry outlook and updates about gaming approvals; impact of global macro headwinds on gamers' spending; advertising outlook and trends across different industry categories that affect the monetization of video accounts; fintech revenue trend and regulatory trends; and the company’s cloud investment strategies.