What’s going on?

• Tencent (Chinese internet giant) delivered fluent earnings, but stumbled by sales growth.

What does this mean?

• Tencent’s revenue was up 20% yoy last quarter, which is not bad, but still its smallest rise since 2019. One reason is the Chinese government’s expanding tech crackdown, which has likely hit Tencent’s mobile gaming empire.
• A $3b gain on Tencent’s investment portfolio helped its profit grow by a better-than-expected 29%. For next quarterly results, however, Tencent might be announcing investment losses.
  • Tencent is a big backer of Chinese for-profit education startups (like Yuanfudao and VIPKid). However, a reforming overhaul of the industry banned such firms from making a profit.
• Besides the undercut of valuations, Tencent might also be stuck with these unattractive unlisted shares.
  • China’s new rules also banned such companies from an IPO. This means the only way out is to find some other private investors to sell them to.

Why should I care?

The bigger picture: Tencent is not outside of the battle

• Tencent’s share price is down by more than 40% from its peak in February.
  • Though not specifically targeted, Tencent is vulnerable to a government crackdown that’s rapidly expanded to cover data security and online content.
  • Worried investors around the world have been selling Tencent’s stock as a result.

Zooming out: Land or gold

• As a result, Tencent’s no longer Asia’s most valuable company. That crown now belongs to TSMC (the world’s largest contract manufacturer of microchips, including for Apple). Thanks to its bumper profit recently thanks to the global chip shortage, investors have sent TSMC’s stock up.

Content source: Finimize (2021) Tencenter Stage. Available at: https://www.finimize.com/wp/news/tencenter-stage/ [Accessed on Aug 21, 2021]