Tencent poised to rub shoulders with Apple and Facebook as China’s first entrant to elite US$500 billion tech club

November 14, 2017
Industry News
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Bien Perez

Internet giant closes in on massive market valuation on the back of its huge video games revenue, advertising and social media businesses

Tencent Holdings is within touching distance of becoming the first Chinese technology company to top a US$500 billion in market value, joining an elite club led by hi-tech industry stalwarts Apple, Alphabet, Facebook and Microsoft.

The video games-to-social media conglomerate, expected to report its third-quarter financial results after the market closes in Hong Kong on Wednesday, is expected to post its second-largest quarterly profit on record.

Buoyed by the popularity of its smartphone games, led by flagship title Honour of Kings, and efforts to generate more advertising revenue from its WeChat social messaging app, Shenzhen-based Tencent has seen its share price double this year to value the company at US$473 billion.

Tencent has been one of the biggest beneficiaries of mainland China’s initiatives to boost the role of technology in its US$11 trillion economy.

The company recently raked in more gains from the initial public offering of its online publishing unit China Literature, the share price of which doubled in intraday trading on its trading debut in Hong Kong last week.

Reaching US$500 billion in market value “would be a recognition of how Tencent has consistently executed on its strategy, creating businesses with sustainable growth”, said Karen Chan, an equity analyst at investment bank Jefferies.

“The obvious next step for Tencent would be to expand outside China and compete against its global peers.”

Co-founded by chairman and chief executive Pony Ma Huateng in 1998, Tencent is forecast to report a 39.5 per cent increase in net profit to 16.4 billion yuan (US$2.5 billion) in the quarter ended September 30, up from 10.6 billion yuan in the same period last year, according to the consensus estimate from a Bloomberg survey of analysts.

Total revenue is expected to jump 51 per cent to about 61 billion yuan from 40.1 billion yuan a year earlier.

Chan said Tencent is expected to report stable monthly gross from its blockbuster mobile game Honour of Kings, as well as a full quarter’s contribution from new titles such as King of Chaos and Legend of Xuan Yuan Mobile.

“The obvious next step for Tencent would be to expand outside China and compete against its global peers.” KAREN CHAN, AN EQUITY ANALYST AT INVESTMENT BANK JEFFERIES

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