Tencent Targets Business Customers in Restructuring Plan

BEIJING—Chinese internet giant Tencent Holdings Ltd. TCEHY -1.69% announced its first restructuring in six years Sunday, including creating a new division to focus on business services such as cloud computing.

Tencent has lagged behind rival Alibaba Group Holding Ltd. BABA -0.94% in cloud computing. Business services are seen as a potential growth area as revenue from videogames and advertising—Tencent’s bread-and-butter—slows, partly because of regulatory problems and a maturing market.

“It’s a really major change and signals they are looking for a new strategy,” said Shawn Yang, executive director of Blue Lotus Capital Advisors. “Their most profitable businesses are gaming and advertising, but they are about to hit a ceiling.”

Tencent shares have plunged 20.4% this year, closing Friday at 323.20 Hong Kong dollars, as Chinese regulators have frozen approval of new videogames, which is Tencent’s single-biggest source of revenue. Tecent’s second-quarter profit fell for the first time year-over-year since 2005 as it grappled with the increased government scrutiny.

The Shenzhen-based company said it will trim its business units from seven to six by consolidating most of the responsibilities of several of its content-focused groups—including online media and mobile internet, into one. Videogames will remain under the interactive entertainment group.

A separate group for its WeChat social network, which has more than 1 billion users, will remain in place.

It also will set up a technical committee to push for research and development as Tencent looks to a future powered by artificial intelligence and 5G, the company said in a statement.

In a statement, President Martin Lau said the company had to “stay awake” to “lead Tencent into the next era.” Chief Executive Pony Ma called the changes “a new starting point for Tencent in the next 20 years.”

Alibaba dominates Chinese cloud computing, with about 45% market share compared with Tencent’s 10%.

Tencent traditionally has focused on products for consumers, so focusing on servicing corporate clients will require a cultural shift within Tencent. The company is known for a decentralized system where product innovation frequently percolates from the bottom up. However, cloud computing requires a more centralized management structure for developing the technology and selling to business clients.

But those changes are necessary if Tencent wants to remain a player in the future, Mr. Yang said.

“They need to find the next biggest opportunities,” Mr. Yang said. Catering to other businesses will be “the most important concept for the next 10 to 20 years.”

— Yang Jie contributed to article.

Read again Tencent Targets Business Customers in Restructuring Plan : https://ift.tt/2NebInk

Let's block ads! (Why?)