Tencent Shares Fall on Missing Revenue and Margins Warning
Shares of Tencent Holdings Ltd fell as much as 5% in Hong Kong after it announced on Wednesday that revenue missed estimates, and warned that future investments may hurt margins.
By noon, Tencent shares dropped 3.29% against a 0.63% fall in the benchmark Hang Seng Index. The Chinese internet giant plunged 5.02% to finish at 439.40 Hong Kong dollars. It was the biggest fall in over a month. It shed some of the gains that ranked it among the world’s best performers over the past decades. In addition, it lost a total of more than $26 billion of market capitalization.
Net profit for the 3 months to December 31 nearly doubled year-on-year to 20.8 billion yuan ($3.29 billion), according to Tencent in a filing to the Hong Kong Stock Exchange.
A 51% rise in revenue was lower than expected after mobile gaming revenue growth slowed from the previous quarter. However, the company said overall revenue was supported by payment-related services, advertising and digital content subscriptions, and sales.
Tencent’s messenger app WeChat now has more than 1 billion users. It has also launched in-app services that could hit Apple and Google’s app revenue.
There are now 580,000 of these mini-programs with more than 170 million daily active users as of January, the company said.
Meanwhile, Tencent president Martin Lau warned at a briefing on Wednesday that the company plans to invest that may hurt margins.
The areas mentioned for future investments include video, Weixin Pay, cloud services, artificial intelligence, and smart retail, according to Lau. The company would also “aggressively” acquire video content, and subsidize payment adoption.
“Tencent needs to invest in new business, it would help the company build a better ecosystem infrastructure to support growth, but it will hurt margins in the short term,” said Benjamin Wu, an analyst at China-based consultancy Pacific Epoch.
With a market capitalization of around $542 billion, Tencent is Asia’s most valuable listed company. It’s also the world’s 5th behind Apple, Amazon.com, Alphabet, and Microsoft.
“The year of 2017 was really a stellar year for Tencent. Many of the achievements are the result of the investment we made years ago,” Lau said.
“This demonstrates the importance of forward-looking investment. Therefore, for the year 2018, we are planning to step up our investment in a number of key areas.”
Naspers to Sell $10 billion Tencent Shares
Naspers, Africa’s most valuable listed company, will sell $10-billion of its shares of Tencent to invest in fintech, classified, and online food delivery businesses.
The African internet giant said on Thursday that it was selling 190 million of its shares in Tencent. A 2% of the company’s listed capital.
The funds “will be used to reinforce Naspers’ balance sheet and will be invested overtime to accelerate the growth of our classifieds, online food delivery, and fintech businesses globally,” the company said.
Moreover, Naspers said it will not sell any further Tencent shares for 3 years after Thursday’s sale. It will reduce its stake to 31%.
Naspers said it “considers Tencent to be one of the very best growth enterprises in any industry in the world, managed by an exceptionally able team. Tencent understands and supports the intention to sell.”
