Tencent Stocks Drop Along with Looming Ban
Tencent Holdings Inc.’s stocks fell 4.8% on Monday, following its recorded 5.4% dip on Friday. The cumulative 9.8% drop is the company’s worst performance since 2011.
The lukewarm performance of tech shares in Hongkong stock trading further pulled Asia’s most valuable company down.
But the main reason for the fleeing investors is President Trump’s issuance of the executive order which will effectively ban WeChat from the United States. The order will enter into force 45 days after its issuance, tentatively on September 20.
To date, Tencent already lost $66 billion in market value.
On the other hand, Tencent Music Entertainment (TME) revenue jumps 18% for the second quarter, beating analyst forecast.
TME shares rose 2.4% after stock trading hours. The second-quarter revenue grew to a total of $997 million. First-quarter earnings hit $15.2 billion, which is a 26% increase from a year earlier.
The paid subscription base grew by more than half. TME recorded its fastest following to date with subscribers hitting 47.1 million for the quarter ended June 30. This surge translates to 52% of user growth.
Tencent Holdings holds a family-friendly reputation that connects Chinese families closer together, as manifested in WeChat which over a billion users worldwide.
The company has a total of more than 470 investments in different ventures including in gaming, music, movies, among others.
In the music industry, it has a 7.5% stake with Spotify. Similarly, its film and production arm has produced numerous Hollywood films in the past including the big rollers Wonder Woman in 2017 and Terminator: Dark Fate in 2019.
Another of its well-received creation by the international market is League of Legends. Surprisingly, it also owns 5% of the US-based electric vehicle manufacturer, Tesla.
President Trump accused both Chinese-owned apps TikTok and WeChat to be feeding the Chinese Communist Party user information which the United States considers as a national privacy and security threat.
Tencent Ban Could Have Spillover Effects on Apple Sales
In 2019, the Chinese population accounts for 18% of Apple’s total revenue, equivalent to $44 billion in revenue from greater China alone.
Records note that there is no other US-owned company that makes as much profit in the Chinese market as Apple. However, this is likely to change as soon as the ban enters into force.
The severed relations between the two most powerful economies ignited attacks on tech companies the past months, leading to country-wide bans of several Chinese apps.
The WeChat ban could result in a 20% to 30% drop in Apple’s iPhone sales. The ubiquity of WeChat to the Chinese population cannot compromise the app’s significance in their daily lives over an iPhone. The app is widely used in eCommerce, digital payments, and communication in general.
Other Apple-branded products also expect a 15% to 25% hit due to their indispensable connection with iPhone, creating an ecosystem of products.
If WeChat is only banned on US App Store, the hit will still be felt but only at a modest percentage of 3% to 5%.
The turnout of events next month will have lasting effects, especially on tech firms. The NASDAQ-100’s leading firms experienced an unprecedented upward trajectory in the recent months brought by lockdowns.
