Tencent Stock Analysis - Investing in China
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Like Alibaba, Tencent is a tech giant based in China.
Tencent is the worlds largest video game company, one of the largest social media companies and one of the largest venture capital and investment companies in the world.
Tencent are involved in hundreds of different areas and they are a strong player in all these places. For example,
Music - Tencent Music Entertainment has 120 million paying subscribers… which is about the same as Spotify.
Gaming - think Fortnite, League of Legends, Call of Duty. and the rise of eSports.
Social media - WeChat, with 1 billion users.
Banking, insurance, movie production, virtual reality, ride sharing, real estate, space technology,
They really have their fingers in every pie. It is truly a mega conglomerate.
Its hard to think of a company to compare it to that you might be familiar with.
I guess its part Facebook, part Google, part Tesla, part EA sports.
But with great diversification comes the problem whether they can actually manage all these different areas?
Wechat and gaming are the most important parts of the business.
WeChat offers mobile banking, stock trading and even buying movie tickets.
It integrates with Didi (which is the Uber of China) so you can order a taxi on the app.
And many companies are selling directly through WeChat.
Tencent is at the heart of the Esports revolution. It’s not just the massive growth in people player their games, but its actually the growth in viewers watching people play the games.
In 2017 the total viewers of esports reached 335 million people, to a predicted 2021 557 million.
And as popularity grows and awareness grows, so does the revenue.
These stats clearly show the rapid growth in esports, and even in the USA, where most people would think that traditional sports are more popular, well Esports is second only to the NFL, and it beats Baseball, Basketball and hockey.
Tencent is capitalising on a new generation of sport fans.
Criticism
Because WeChat is a monopoly in the Chinese market, critics are quick to point out any anti competitive behaviour. Also the company has been described as not an innovator, rather a bully, using it’s money to control it’s markets.
Well like Alibaba, Tencent is a strong company but the current share price is just too high. But I would happily be an investor if the price was to get to $277 HKD.
So to summarise everything,
Tencent is a great company and is performing really well. I think they are a little aggressive with their current ratio, but it isn’t a big red flag.
The current price is too high, but a 30% fall in the markets is possible, but for such a strong company, it is unlikely.
I’m definitely adding Tencent to my list of companies that I will be watching.
They are the dominant social media player in China,
They are in the box seat of the future of eSports.
China is a huge market
They are investing in the future
Many different revenue streams.
And their finances are solid.
Now, Chinese companies do not have the most trustworthy reputation regarding financial reporting. So, i’m not going to go out and pay any more than what I think fair value is including a good margin of safety.
But I will be pouncing if the companies financials are still solid in the future and the price reaches my first buy in price.
Until then, I’ll keep looking for investment opportunities in China, I now have 2 Chinese companies that I like. Maybe I will find some more.
Hit subscribe if enjoy my analyses and see you in the next video.
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