Tencent Holdings Ltd (700.HK) surged nearly 1,000% over the past decade as WeChat became China’s top messaging app and its video game business became the largest in the world. These two pillars, along with its ever-expanding ecosystem of new products, services, and investments, made it a solid play on China’s economic growth.
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Listed in 2004, Tencent has since grown into a technology titan that is comparable to the likes of Facebook and Alphabet. During this process, many of its early investors have made significant returns. As an aside, Tencent’s stock price has grown more than 150 times since its IPO! But what about those who have missed the boat in the past? Should they still consider the company’s stock now?
Dominant Business Set To Lead In Their Respective Areas
Tencent is one of the most interesting companies in the world. To start with, its flagship social communications products – WeChat and QQ, have combined monthly active users of 1.2 billion. In particular, WeChat offers a comprehensive set of services in its ecosystem that range from e-commerce, gaming, news, payments, and more. For instance, to those that are not familiar to Wechat’s ecosystem, it’s like Facebook, PayPal Activision, Blizzard, Netflix and more all combined in a single ecosystem.
In China, it is nearly impossible for one to survive without WeChat, which demonstrates how important such app is to the Chinese population.
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Another cash generator for the company is their gaming business, in which is the largest in China. Historically, this segment generates significant cash flow, which was directed into other new business ventures – including WeChat’s development in the early days.
Both businesses above have been extremely profitable for Tencent. In addition, it has several other businesses such as WeChat payments, Tencent Video, Music, Content, and Cloud. All these businesses are either number one or number two in their respective fields.
Stock Rally To Continue In The Long Term
Historically, growth investors have benefitted tremendously by investing in the company’s stock. Its growth trajectory, however, is far from over.
As reported from its latest quarter’s result, revenue increased at 21% year-on-year while net profit jumped 24% year-on-year. Such performance was admirable, especially considering the slowdown in its core businesses like gaming and media advertising, both affected by temporary factors. In other words, these segments should resume their growth when the headwinds subside.
Despite the slowdown in growth in gaming with the slow approval of gaming license from the Chinese government, some businesses continue to grow well during the quarter. For example, social and other advertising revenues grew 32% year-on-year while FinTech and Business Services revenues were up 36% year-on-year.