China’s tech companies expect a drop in profits

China’s biggest listed companies, such as Alibaba and Tencent, will report a decline in profits and decreasing revenue growth in the quarter between July and September. The reason for the fall was the year-long regulatory crackdown affecting its technology industry.

Beijing has taken control over its internet sector, punishing famous names for engaging in regular market practices and outlining new rules to change how they engage users.

Last month, KGI Asia analysts said in a note that the third-quarter earnings would reflect the financial impact of regulatory headwinds in China. That would also affect fourth-quarter guidance.

China’s largest company by market value, Tencent Holdings Ltd, is likely to report a 12% drop in quarterly profit. According to Refinitiv data, it would be its first drop in two years.

The gaming giant’s revenue will rise 16.5%. This is considered the slowest speed since the government forced new limits on children’s time playing video games.

This quarter, China also stopped Tencent from engaging in special music deals, referring to anti-competitive reasons.

Slowing Ratail Sales

Late last year, China’s first regulatory target was E-commerce powerhouse Alibaba. It is now likely to report around 13% drop in profit in this quarter. However, revenue will possibly grow 33 percent, the slowest in this year.

Two quarters ago, the company posted its first-quarter loss after receiving a fine worth a record $2.9bn. It was the worst quarter since going public in 2014.

Its smaller competitor JD.com Inc will report a 72 percent drop in profit along with the slowest revenue growth in the last six quarters.

KGI Asia analysts said that slowing retail sales because of the COVID-19 lockdowns and recent unexpected power shortages in China would hurt Alibaba and smaller competitors.

Advertising hit

In China, big e-commerce businesses face growing competition from short video apps such as Douyin and Kuaishou. According to the report, they are growing e-commerce businesses successfully.

China’s leading search engine operator, Baidu, will report around an 81% quarterly profit drop. This is largely due to a fall in advertising revenue. China’s attempts to control medical beauty advertisements have also affected advertising. On conference calls, executives will receive questions on their expectations, while investors will observe whether the worst part is over or not.

Last month, Guo Shuqing, the party chief of the Central Bank, said that most financial issues on China’s internet platforms received a positive response. He added that some problems had been resolved.