Hu Feijun Brokerage China

  A wave of Tencent employees is about to laugh, because equity incentives are ushered in.

  On May 23, Tencent announced that the board of directors decided to issue a total of 10,098,500 new shares according to the general mandate granted by the company's shareholders at the 2022 annual general meeting, to no less than 7,000 people who received awards.

Based on the closing price of HK$346.8/share on May 23, the total value of the granted shares is HK$3.5 billion.

  However, according to a Chinese reporter from a brokerage firm, this time Tencent’s additional share issuance does not belong to a new round of equity incentive granting, but belongs to the implementation of the previous equity incentive plan.

  It is worth mentioning that Tencent recently exposed the news of layoffs, including Tencent Cloud, game business, advertising business, content business and other business groups.

  Tencent's net profit continued to decline in the first quarter of this year. Ma Huateng, founder of Tencent, said: "Tencent has implemented cost control measures and adjusted some non-core businesses, which will help us achieve a more optimized cost structure in the future."

  And Tencent related executives also said that the more personnel, the higher the cost, so structural changes need to be made to focus on more profitable businesses.

With the current structural changes in the industry, companies may optimize personnel, but temporary factors such as the epidemic will not be the reason for optimization.

  7,000 people's equity incentives "fall out of pocket"

  According to Tencent's latest announcement, the board of directors has resolved to issue a total of 10,098,500 new shares in accordance with the general mandate granted by the company's shareholders at the 2022 annual general meeting (the maximum number of shares that can be issued and allotted is 19,223,900 shares).

  The new shares authorized to issue, on the one hand, are to issue a total of 9.81 million award shares in accordance with the 2019 plan to be granted to no less than 7,000 awardees in July 2021; It was announced that the adjustment due to distribution in kind issued a total of 288,000 additional award shares for the awards granted to the above projects, which was mainly due to the corresponding adjustment to the award shares due to distribution in kind.

  Tencent stated that the share issuance does not require further approval from shareholders, and the vesting of the award shares will not be implemented until the vesting conditions set out in the 2019 plan and related offer documents are met.

  According to a person close to Tencent, the issuance of new shares by share incentives is not a new round of equity incentive granting by Tencent.

Additional issuance of new shares is the main source of RSU (restricted stock) shares granted by the company, and the company often issues new shares in multiple batches in order to fulfill the behavior of issuing RSUs.

  For example, when Tencent grants RSUs to employees, it is equivalent to issuing a "regular food stamp", and the company needs to obtain "food" through additional issuance, so that when employees are due to exchange "food stamps", the company can smoothly "" Open the warehouse and release the grain".

Therefore, Tencent's announcement of additional issuance does not mean that new shares will be granted on the same day, but to prepare "food" for employees who have been granted before.

  Based on the closing price of HK$346.8 per share on May 23, the total value of the granted shares to 7,000 people is HK$3.5 billion. If each person is distributed equally, they will get 1442.6 shares, worth about HK$500,000.

For Tencent, which has as many as 116,200 employees, the 7,000 people who have been motivated are also among the "outstanding ones".

  Tencent stated that the purpose of the share incentive issuance is, on the one hand, to reward the contributions made by those who have been rewarded;

  First-quarter performance declines, layoff news spreads

  While some Tencent employees have been “sacked” in the early stage of the equity incentive plan, other employees are facing layoffs due to the company’s cost reduction.

  Affected by various factors such as the epidemic, Internet technology companies have not had a good time. They have reduced their expenditures one after another, and news of layoffs has continued to spread.

  Tencent's revenue in the first quarter of this year was 135.5 billion yuan, a year-on-year increase of almost zero. According to non-international accounting standards, its net profit was 25.55 billion yuan, a year-on-year decrease of 23%. If you look at the profit attributable to Tencent's equity holders, the decline is even greater. It achieved a net profit of 23.4 billion yuan, a year-on-year decrease of 51%, which was directly "halved".

  In terms of specific businesses, advertising revenue declined significantly, game revenue growth was sluggish, while financial technology and enterprise service businesses achieved rapid growth, becoming new support for performance.

  Specifically, the revenue of the value-added services business in the first quarter was 72.7 billion yuan, an increase of only about 300 million yuan year-on-year; the revenue of the online advertising business in the quarter fell by 18% year-on-year to 18 billion yuan; the revenue of the financial technology and enterprise services business in the quarter increased by 10% year-on-year. In terms of game business, the game revenue in the local market was 33 billion yuan, a year-on-year decrease of 1%, and the international market game revenue was 10.6 billion yuan, a year-on-year increase of 4%.

  It is worth mentioning that Tencent’s net profit declined in the first quarter. In addition to the weak growth in revenue from advertising and games, the substantial increase in expenses was also an important reason.

  Data shows that in the first quarter of this year, Tencent’s general and administrative expenses reached 26.7 billion yuan, a year-on-year increase of 41%. The financial report explained that this was mainly due to the increase in share-based compensation expenses, R&D expenses and employee costs (reflecting our continued investment in key strategic areas. resulting in an increase in the number of employees), an increase in expenses for overseas subsidiaries, etc.

  As of March 31, 2022, Tencent had 116,213 employees, a year-on-year increase of 30.2%, and the total remuneration in the first quarter of 2022 was 29.229 billion yuan, a year-on-year increase of 43.2%.

  According to financial reports, Tencent is conducting a new round of layoffs. At present, most business groups are laying off employees, including Tencent Cloud, game business, advertising business, content business, etc. The investment department has not laid off staff yet.

Among them, Tencent game business people said that the proportion of layoffs is about 10%.

In March of this year, Tencent’s CSIG business has already been laid off, with a ratio of about 15%.

  Ma Huateng said in the financial report that during the challenging first quarter of 2022, "we implemented cost control measures and adjusted some non-core businesses, which will help us achieve a more optimized cost structure in the future."

  At the Tencent earnings conference call, Tencent executives said that the more staff, the higher the cost, so structural changes are needed to focus on more profitable businesses.

With the current structural changes in the industry, companies may optimize personnel, but temporary factors such as the epidemic will not be the reason for optimization.

Therefore, on the whole, cost reduction and efficiency increase is a comprehensive consideration.

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