Tencent's (OTC:TCEHY) stock recently tumbled after antitrust fears overshadowed its impressive fourth-quarter earnings. The Chinese tech giant's revenue rose 26% year over year to 133.7 billion yuan ($20.5 billion), beating estimates by 0.6 billion yuan.

Its net income surged 175% to 59.3 billion yuan ($9.1 billion), beating expectations by 26.4 billion yuan. However, over half of those profits came from one-time gains during the quarter. Excluding those gains, its adjusted net profit still increased 30% to 33.2 billion yuan ($5.1 billion).

Those headline numbers looked solid, but Tencent's stock dropped after a Bloomberg report claimed the Chinese government was looking to establish a joint venture with the country's top tech companies to oversee the personal data they collect from consumers.

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Those alleged plans, along with the fear that Tencent would become the government's next antitrust target after Alibaba (NYSE:BABA), doused any enthusiasm for its quarterly results. Yet Tencent's stock is still up about 60% over the past 12 months, so should investors take profits now or buy the dip?

What the bears will say about Tencent

The bears will note that Tencent's top-line growth decelerated from its previous two quarters because two of its core businesses, online gaming and social networking, generated slower growth.

Tencent's online gaming revenue rose 29% year over year to 39.1 billion yuan ($6.0 billion), compared to its 45% growth in the third quarter. It mainly attributed that growth to its top smartphone games -- including Honor of Kings, Peacekeeper Elite, PUBG Mobile, and the new Moonlight Blade Mobile -- but it was clearly losing the momentum it gained from stay-at-home measures during the pandemic.

Tencent has been acquiring stakes in more gaming studios to expand the business, but its inorganic growth strategy could be derailed by China's antitrust regulators -- which recently fined Tencent over unapproved acquisitions. China could also further tighten its rules for licensing games, as it did over the past three years, and make it tougher for Tencent to launch new games as its top titles mature.

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Tencent's social networking revenues, which include subscriptions and in-app purchases across its top social media platforms like WeChat, QQ, and Huya (NYSE:HUYA), rose 27% to 27.9 billion yuan ($4.3 billion). That also marked a slowdown from its 29% growth in the third quarter.

WeChat, Tencent's top messaging platform and Mini Program ecosystem, still grew its monthly active users 5% year over year to 1.23 billion. But if the Chinese government starts aggressively throttling or policing Tencent's data-gathering capabilities, it could struggle to expand WeChat and its other social media platforms.

Tencent's plans to merge Huya with DouYu (NASDAQ:DOYU) to create China's top game-streaming platform -- which would strengthen its social networking business -- also faces antitrust scrutiny.

What the bulls will say about Tencent

On the bright side, Tencent's online advertising and fintech and business services segments generated accelerating revenue growth.

Its online advertising revenues -- which come from ads across its social media platforms, streaming media services, games, and other apps -- rose 22% year over year to 24.7 billion yuan ($3.8 billion), compared to its 16% growth in the third quarter. That growth was impressive since Baidu (NASDAQ:BIDU) -- which owns China's top search engine -- posted seven straight quarters of revenue declines.

Tencent attributes the segment's growth to higher demand for ads across the online education, e-commerce, and fast-moving consumer goods sectors, as well as its consolidation of Bitauto -- the online auto marketplace it took private last year. Nonetheless, tougher government-mandated rules for mining user data could still limit Tencent's ability to display targeted ads in the future.

Tencent's fintech and business services revenue, which primarily comes from its online payment platform WeChat Pay and its cloud infrastructure platform Tencent Cloud, rose 29% year over year to 38.5 billion yuan ($5.9 billion), compared to its 24% growth in the third quarter.

It attributed that acceleration to the growth of its commercial payment and wealth management services, the consolidation of Bitauto's business services, and the expansion of its cloud services.

Tencent Cloud is probably safe from the antitrust regulators since it ranks third in China's cloud infrastructure market after Alibaba and Huawei. But in the fintech market, WeChat Pay shares a near-duopoly in the online payments market with Ant Group's AliPay, and it is widely expected to face the same antitrust headwinds that derailed Ant's IPO last November.

A dark cloud hangs over a bright business

On the surface, Tencent is an attractive growth stock. It dominates China's gaming and social media sectors, and analysts expect its revenue and earnings to rise 21% and 27%, respectively, this year. Those are high growth rates for a stock that trades at just 25 times forward earnings.

However, Tencent's depressed valuation reflects the dark antitrust cloud that is casting shadows across all its businesses. Until that oppressive cloud dissipates, it's smarter for investors to stick with other growth stocks that don't face any near-term regulatory headwinds.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.