Tencent (HKG: 0700) Entices Further Investment In China Following Earnings


Chinese internet behemoth Tencent (HKG: 0700) reported its highest-ever quarterly profit on Wednesday, perhaps confounding investors who wiped $17 billion off its $480 billion value on Tuesday.

What does this mean?

Tencent owns the all-powerful WeChat – China’s answer to WhatsApp. In some ways, it’s China’s equivalent of Facebook. Investors were worried that Tencent’s ongoing shopping spree – investing in cloud computing, entertainment and physical retail in a bid to compete with Alibaba (China’s $500 billion answer to Amazon) – would result in the company posting its worst-ever profit margin.

But thanks to the company’s online advertising, where sales grew by 55% compared to the same time last year, as well as messaging services and games like Honor of Kings, Tencent proved its naysayers wrong by reporting first-quarter profits a third higher than investors expected.

Why should investors care?

For markets: Tencent’s stock fell by more than ten cents before Wednesday.

Tencent’s stock listed in Hong Kong has fallen by about 15% since January’s record highs, shedding nearly $80 billion in value. As the company spends more on going head-to-head with Alibaba’s core strengths, investors may have looked west and concluded that Tencent’s fate might mirror the handful of large companies that have jousted with Amazon and lost.

The bigger picture: There’s a party in China and everyone’s invited.

Last year, MSCI (NYSE: MSCI) – a company that decides which stocks should be included in certain investment “baskets” (e.g. an index) – said it wanted to include stocks from mainland China in its emerging markets lists – recognizing the steps the country’s taken to become more open to foreign investors. In April, China’s president reiterated vows to open up the country’s economy to the international community – and JPMorgan Chase, among other global investment banks, took notice: it all but exited China in 2016, but recent legal changes have now enticed it back.

This article was originally published by finimize.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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