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Tencent taps AI technology amid first annual revenue drop

Written by Nikkei Asia Published on   4 mins read

Chinese gaming giant says will not rush own ChatGPT-style chatbot.

Chinese tech giant Tencent Holdings said that artificial intelligence technology could be a “growth multiplier” for the company as it reported its first-ever annual revenue decline.

As the Microsoft-backed ChatGPT takes the tech world by storm, Chinese search engine giant Baidu has unveiled Ernie Bot, its answer to the rival chatbot, with Tencent and other Chinese tech companies also announcing plans for similar services and AI-generated content.

Tencent President Martin Lau said its own chatbot service, which is based on a proprietary foundation model called Hunyuan, “is actually [in] the very early development stage,” when asked by Nikkei Asia how it would differ from Ernie during a media briefing.

“The most important thing for us at this point is that we need to develop the model right and we can build it up for the long run,” he said. “It’s much more important for us to do it right rather than to do it fast. When we have the right model, we will release it to the market.”

Lau pointed to the emerging technology as a potential new revenue generator.

“Foundation models facilitate our services such as digital assistant and search, which can become new growth areas for us,” Lau told reporters, adding that the company has been investing in its new machine learning infrastructure.

“We believe that chatbot is one of the many applications that we’ll be launching going forward. So it is a business opportunity that we can actually build over time and not a business threat that we have to tackle immediately,” he said.

Analysts have warned chips might present a wild card that could ultimately slow down AI advancement in China, as American companies have been barred from shipping certain grades of advanced chipmaking equipment to any China-based client without a license.

But Lau said Tencent has stockpiled enough chips to create its own AI model.

“More importantly, we have a very strong cloud business and the relevant technologies to really arrange and make use of the chips in a scalable and high-density way so that we can create very large clusters of chips that can really deliver the performance that’s needed to train these very large models, especially when the models get more and more sophisticated over time after a few iterations,” he said.

Lau’s comments came as Tencent, the world’s largest video game company, posted annual revenue of RMB 554.55 billion (USD 80.5 billion) for 2022, a decrease of 1% from 2021, as it struggled with an economic downturn largely driven by Beijing’s strict zero-COVID strategy. The tough virus curbs were abandoned late last year.

Tencent’s revenue for the October-December quarter stood at RMB 144.95 billion (USD 21.1 billion), ticking up 0.5% on the year and beating the average estimate of RMB 144.02 billion (USD 21 billion) from 19 analysts surveyed by Refinitiv.

The company’s annual profit, meanwhile, dropped 16% to RMB 188.24 billion (USD 27.4 billion) in 2022.

But net income in the fourth-quarter came in at a better-than-expected RMB 106.27 billion (USD 15.5 billion), an increase of 12% on the year, as the company scaled down noncore businesses and cut staff, as well as launched new revenue-generating services. Some 4,335 employees left the company during the same period.

Domestic games revenue decreased 6% to RMB 27.9 billion (USD 4 billion) due to year-on-year lower gross cash receipts in previous quarters. International game revenue increased by 5% to RMB 13.9 billion (USD 2 billion) as the company stepped up its overseas expansion.

China granted licenses for 27 foreign games this month, including titles to be published by Tencent, NetEase, and Bilibili. This is the first batch of imported game approvals issued this year, a move that analysts said showed a more supportive regulatory policy toward foreign titles after a monthslong freeze on issuing new approvals, which are required in China.

“We’re now gearing up for a global expansion of our games, and in the domestic market, we navigated through industry challenges during 2022 and are now well-positioned for igniting growth,” Lau said.

As growth slows, Tencent is focusing on its short-video platform, Channels, a function embedded in its popular superapp WeChat to challenge rivals Kuaishou and ByteDance’s Douyin. Tencent began charging commissions from e-commerce vendors on Channels in January.

However, the per capita daily time spent on Channels is estimated to be about 30 minutes, 30% of Kuaishou and Douyin.

But Tencent said the number of Channels users is growing “consistently” and it will be a “key strategic growth driver” for the company.

“We see there’s great demand to advertise in the short-form video format to consumers who previously weren’t reachable in short videos. From that perspective, Channels is highly appealing because many of its viewers are not overlapping with existing short-form video services,” said James Mitchell, chief strategy officer.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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