China’s largest tech corporations from Tencent to Alibaba Group Holding Ltd. have been pushed into a new era of cautious expansion, after a year-long clampdown campaign that engulfed every internet sphere from e-commerce to gaming and fintech. This week, investors initially seized on a pledge from economic czar Liu He to support the digital economy as a signal the crackdown is easing, or perhaps even coming to a conclusion.

But Tencent President Martin Lau said it will take time for various regulators to formulate and enact policies in response to that sweeping endorsement. Shares in Prosus NV, Tencent’s largest shareholder, slid more than 4% in Europe.

“We can clearly see that from the most senior level, there’s a pretty clear signal of support released. But for this to translate into real impact on our business, there is going to be a time lag,” Lau told analysts on a conference call. “It would take the specific regulators and ministries to translate this direction into real action.”

Meanwhile, Tencent and its peers must continue to grapple with a range of headwinds that’s pushing growth to historic lows.

Tencent on Wednesday posted its slowest revenue gain since going public in 2004. Sales rose 0.1% to 135.5 billion yuan ($20.1 billion) for the three months ended March, missing the average forecast. Net income slid 51% to 23.4 billion yuan, lagging estimates despite a big gain from the sale of stock in Singapore’s Sea Ltd.

Tencent has so far largely escaped direct scrutiny from Beijing, but not fallout from the broader clampdown and economic malaise. It’s shed roughly $500 billion of market value since its 2021 peak, even as the company studiously endorses Beijing’s efforts to curb excesses in its once free-wheeling internet sector.

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What Bloomberg Intelligence Says

2022 could mark Tencent’s second straight year of low single-digit EPS gains, putting its status as a China growth stock into question. Yet, 2H and 2023 may yet draw flames from Tencent’s glowing growth embers, particularly if consumer demand stabilizes, regulatory tightening eases, and gaming approvals resume.

– Marvin Chen and Sufianti Sufianti, analysts

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Read more: Tencent, Alibaba Look Like Utilities After $1 Trillion Drubbing

Online advertising sales slid a worse-than-expected 18% after contracting for the first time in the December quarter. The business has been battered by China’s weakening economy and competition against TikTok-owner ByteDance Ltd., while big marketers of past years including online tutors and insurers tightened budgets after falling victim to separate regulatory crackdowns.

Tencent’s bread-and-butter gaming division — the world’s largest — also barely expanded revenue. It’s still on the waitlist for new monetization licenses, after regulators last month approved the first batch of domestic releases since July. The company, expecting fewer gaming approvals in coming years, has already re-calibrated its pipeline to focus on quality over quantity, strategy chief James Mitchell said.

Given the new realities, executives said in March that international games, cloud software, and WeChat’s video accounts will be their major strategic foci. But overseas gaming sales expanded just 8% in constant currency terms, trailing the double-digit growth of previous periods, in part because of a tough comparison from a year earlier when the world was largely locked down.

“Like other companies operating outside of China, the post-Covid reopening dampener on games is real,” said Vey-Sern Ling, a senior analyst with Union Bancaire Privée. “Main takeaway is growth may be weaker for longer, at least until 2Q22, and then in the second half there is a chance for yoy comps to start looking better.”

Tencent’s fintech and cloud division has become its No. 1 revenue driver. But its 10% growth was also worse than expected after Covid lockdowns in cities like Shanghai and Shenzhen. Cloud revenue suffered a mild decline after the company cut loss-making contracts and ventured into services beyond infrastructure.

For now, the WeChat messaging app is still the payment and smartphone backbone of Tencent’s sprawling online empire, and it’s only going to shoulder a bigger role for money-making to try and offset struggling businesses like streaming and domestic games. In April, Tencent shut its game streaming platform and hiked fees for its Netflix-style service for the second time in about a year, as short-video rivals keep luring away users and marketers.

Just like Mark Zuckerberg’s Meta Platforms Inc., Tencent is taking a leap into the virtual realm of the metaverse in the longer term. The Chinese company has revamped its aging social app QQ with customizable 3D avatars and Unreal Engine graphics, and is hiring developers to make open-world titles. But such endeavors, along with a steady pace of investment in overseas game studios, could pressure margins before they come to fruition.