00700.HK Tencent

Business Overview

Tencent is a leading internet services provider in China, established since 1998 and has achieved steady growth in its user-oriented approach. Tencent Holdings Limited is listed as 00700.HK in Hong Kong Stock Exchange.

Business – Social Networks

A – QQ

QQ is an instant messaging platform with diversified functions and services. QQ has also introduced CM show which delivers tailor made interactive experience for youngsters. Users can access QQ Wallet and use mobile payment to top up for online shopping and bank transfer.

B – Weixin/ Wechat

Wechat is now the dominant messaging platform in china with social media entertainment, real time communications and payment ecosystem – WeChat Pay. It has reached more than 938 million monthly active user accounts as of the first quarter of 2017.

C – Entertainment

Tencent has a wide range of entertainment services such as Tencent Games, Tencent Literature, Tencent Comic, Tencent Pictures, Tencent Video, etc.

D – Platform

Tencent Open Platform is built for its partners to enable them to connect via QQ, Weixin, Qzone and YingYongBao to gain traffic and revenue through open APIs across PC, mobile and multiple devices.

Tencent has its own cloud services for corporate  and individual users. It provides developers with cloud servers, cloud databases, cloud storage and cloud computing services.

E – Artificial Learning

Tencent AI Lab is moving into machine learning and big data, it has 50 world class scientists and 200 experienced engineers in China and US. The key focus areas are machine learning, computer vision, speech recognition and natural language processing.

Tencent is focus on growing its revenue from both online advertisement and online gaming.

Strengths of Tencent

  • Strong brand portfolio
  • Multiple and resilient revenue streams
  • Product innovation
  • Growing ecosystem – network effect
  • Strong and reliable suppliers/supply chain – 20% stake in JD.com
  • Automation

Weakness of Tencent

  • Require investment into new technologies which will continue to require high CAPEX into R&D, currently Tencent is expanding into other countries will require more capital injection.
  • Attrition of employees
  • Resources are drawn too thin with rapid expansion plan

Opportunities for Tencent

  • Economic growth can lead to increase in customer spending
  • Move online to offline channel

Threats

  • Rising pay in China
  • Require breakthrough in innovative products
  • Intense competition from other industry players
  • Change in consumer behaviour
  • Rise of new technology to disrupt existing strength

Valuations

I do not need to go into this as Tencent is not cheap at the moment. Tencent will be on my watchlist.

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