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Tencent, Chatting Its Way To The Apex
Tradeable, Tradeable Ideas | 28 May 2014
By: Lim Si Jie
Articles (169) Profile
  1. Tencent Holdings is the most valuable brand in Asia and the fastest growing brand worldwide.
  2. Tencent continues to make valued investments to boost their services as well as profit from investing in startups with good potential.
  3. Tencent announced Q1 results for quarter ending 31st March 2014 that exceeded expectations.

For those of you who aren’t familiar with the name Tencent Holdings, you probably aren’t that unfamiliar with it. Maybe you just didn’t know that you are already using one of their services, WeChat. Yes, Tencent Holdings, the world’s fourth largest internet company, is the company behind the popular WeChat app.

Tencent comprises of more than a dozen of products and services including popular instant messaging (QQ), social networking, video and online payment services, as well as several wholly-owned subsidiaries in the software development space.

Tencent has a very strong presence in the Chinese and Hong Kong market. As of Dec 31, 2012, the active QQ users accounts for QQ IM amounted to 798.2 million while its peak concurrent users reached 176.4 million. Mobile users there spent 75 per cent of their time on WeChat and QQ.

Most Valuable Brand Name In Asia

Tencent has grown into one of China’s largest and most used Internet service portal. The recently announced “Most Valuable Global Brand Rankings” ranked Tencent Holdings as the most valuable brand in Asia. Tencent displaced China Mobile, China’s state-owned enterprise, as the top brand in Asia.

Source: Millward Brown Australia

On a global scale, Tencent’s brand value rose by a meteoric 97 percent in the past year. Tencent took the top spot as the fastest rising brand name in the global market, out rising the second-placed Facebook by 21 percent. Not to forget, Tencent is also the 14th most valuable brand name in the world.


Source: Brandz.com

Continued Investments To Affirm Its Position

Tencent is a frequent investor in startups with potential, having previously ploughed money into Snapchat, Fab, and KakaoTalk, just to name a few. Recently, Tencent, together with other investors, ploughed in US$36 million into mobile anonymous sharing app, Whisper.

Separately, Tencent will spend US$187 million for a 11.3 percent stake in NavInfo, one of the China’s largest mapping companies. The deal will make Tencent the second-largest shareholder of NavInfo.

Tencent plans to use NavInfo to power its location based services. This deal comes at the back of Alibaba Group’s recent acquisition of mobile mapping provider AuotNavi Holdings. AutoNavi is one of NavInfo’s main competitors. AutoNavi powers Alibaba’s location-based e-commerce mobile services, as well as other navigation offerings, including map engines, location search, and cloud computing services.

Tencent and Alibaba Rivalry
Tencent recently bought a 15 percent stake in China’s second-largest e-commerce player by transactions, JD.com to boost e-commerce. As part of the agreement, Tencent also gave two of its e-commerce holdings to JD.com and will promote JD.com’s services prominently on its WeChat mobile messaging platform, which has more than 270 million monthly active users.

Alibaba is by far still the largest e-commerce player in China. However, analysts have raised concerns about the company’s ability to maintain its massive traffic as users increasingly migrate to smartphones from PCs. The new Tencent-JD.com alliance will seek to drive traffic to JD.com’s e-commerce services via Tencent’s WeChat, a move that seems to be aimed directly at Alibaba.

As Tencent and Alibaba’ rivalry continues, many analysts are tipping the winner of this rivalry to dominate the internet market in China, the world’s second largest economy.


Source: TechAsia

Tencent Q1 Results Exceeded Analysts’ Expectations
Asia’s largest Internet company’s first-quarter revenue surged from online games and advertising through its messaging services.

Revenue saw a 36 percent increase from Rmb13.55 billion to Rmb18.4 billion (US$2.95 billion) in Q1 2014 compared to Q1 2013.

Revenues from Tencent’s online advertising business increased by 38 percent year-on-year to Rmb1,177 million. This was driven by growth in its performance-based social advertising and online video advertising. Traditional brand display advertising also boosted advertising revenue, albeit to a smaller extent. The growth in revenue offset the impact of transferring Tencent’s online search business to Sogou in September 2013.

Revenues from eCommerce transactions business increased by 32 percent year-on-year to Rmb2,524 million (US$400 million), mainly reflecting growth in principal eCommerce transactions volume.

Net income jumped 60 percent to Rmb6.46 billion (US$1 billion). This exceeded Rmb4.86 billion (US$ 0.78 billion) average that analysts were expecting.

#Bullish About Tencent For Its Possible Potential
Given the large consumer market in China that is still yet to fully mature, Tencent has a lot of room for growth as a business. I like Tencent for its strength in its core services as well as diversification of investments into startups with good potential.

To go bullish on Tencent in the long run, dollar cost averaging approach could help to ensure “buying low, selling high”.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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