Iris Deng · · 5 min readTencent seeks new growth in year of transition as consumer businesses mature
Depending on who you talk to, 2018 was either a bumper year for Tencent Holdings or a year to forget.
As the first Asian company to breach US$500 billion in market capitalization, the internet giant’s shares rose to an all-time high in January 2018, powered by its money-minting video game business and ubiquitous WeChat super app. Then came a much-chronicled government crackdown on content and gaming, which abruptly ended the party and wiped out almost half the company’s value by October.
Photo credit: piotrkt / 123RF
Tencent’s roller-coaster year also took place as China’s technology giants came of age. Baidu, Alibaba Group Holding, and Tencent – the trio of internet companies that has come to represent Chinese Big Tech – are all around 20 years old and have expanded their presence beyond China’s shores.
“We’re coming to the tail end of a decade of gangbuster high growth due to the mobile revolution,” said Matthew Brennan, managing director of consultancy firm China Channel. “The incremental increases in number of users and time spent online per person is getting less and less. All the low-hanging fruit is long gone.”
He said the business-to-business market “is an area many technology companies – both in the US and China – feel holds more opportunities for growth.”
Although video game approvals have resumed, Shenzhen-based Tencent has not yet been given the green light to monetize its hugely popular mobile games Fortnite and PlayerUnknown’s Battlegrounds (PUBG). Investors are still waiting for more flesh on the bones of its plan to move into the industrial internet, where it will serve businesses in addition to the millions of consumers it now has on its platform.
In recent months, Tencent has clawed back a large proportion of its stock loss and was trading at around HK$370 (US$47.13) this week compared with an October low of HK$252.20 (US$32.14). But what has changed as the company prepares to report fourth-quarter earnings?
After the close of trading on Thursday, Hong Kong-listed Tencent is projected to post a net profit of 17.5 billion yuan (US$2.6 billion) on revenue of 83.4 billion yuan (US$12.5 billion) in the quarter ended December, according to consensus analyst estimates as polled by Bloomberg. For the full year of 2018, net profit is projected to reach 82.3 billion yuan (US$12.3 billion), while revenue will be 311.4 billion yuan (US$46.6 billion), estimates compiled by Bloomberg show.
With Fortnite and PUBG still awaiting monetization approval, Tencent’s mobile game sales may be headed for a sequential decline in the fourth quarter amid stagnating growth for its maturing blockbuster game Honor of Kings, Bloomberg Intelligence analyst Ling Vey-sern said in a research note, citing a 9 percent decline sequentially in its iOS game sales projected by app-focused research firm Sensor Tower.
Markets, however, are forward-looking, and analysts are betting on a reversal of the tide in 2019.
“We expect Tencent to continue to outpace the domestic online gaming market in 2019 and 2020 on the back of [eventual] monetization of PUBG Mobile, continuous overseas expansion, and the company’s rich game pipeline,” Ronnie Ho, an analyst at CCB International, wrote in a research note.
Photo credit: PUBG
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