What's going on?

Chinese internet giant Tencent posted its first ever drop in quarterly revenue on Wednesday.

What does this mean?

Chinese government crackdowns were still giving Tencent a headache last quarter. Sure, regulators removed the nearly year-long freeze on new game approvals in April, but they�re still yet to give Tencent the go-ahead for a single title this year (tweet this). That�s left it relying on existing games for growth, which might be why there wasn�t any: sales from its domestic gaming business shrank 1% from the same time last year. Tencent�s online ad revenue fell by a record 18% too, as China�s economic slowdown gives cautious businesses the heebie-jeebies. All that might be why Tencent�s overall revenue fell a worse-than-expected 3%, and why its profit collapsed 56%.

Why should I care?

For markets: Tencent breaks the internet.
Tencent once had a lot of sway over the Chinese internet sector via its stakes in hundreds of startups and publicly traded firms. But the country�s government has been working since late 2020 to limit the influence of tech industry leaders, and Tencent has in turn been reducing its ownership in companies like JD.com. And it looks like Meituan might be next, with reports emerging this week that Tencent wants to sell a portion of its $24 billion stake in the food delivery giant. Investors, then, have started abandoning some of its other investments in expectation that the same will happen to them, sending down the stocks of both grocery platform Pinduoduo and short video app Kuaishou.

The bigger picture: Tencent has fingers in many pies.
Tencent will use some of that spare energy to build out its international gaming and cloud software segments, as well as WeChat Video � a TikTok-style feed available to WeChat�s over 1 billion users. It�s also betting on the metaverse, revamping its social app QQ with 3D avatars and hiring developers to make open-world experiences.