Tencent builds momentum for mobile e-commerce push
Stock tipped to extend stunning rise as internet giant finds more ways to make its users pay
Shenzhen-based Tencent has given a dream run to investors since its listing almost a decade ago. Its increasingly ambitious e-commerce plans may make it even more attractive.
When Tencent was listed in Hong Kong in 2004, it was offered at HK$3.70 per share. The stock is now valued at more than a hundred times that amount, with its close at HK$379 yesterday.
This year alone, the country's largest listed internet firm has risen 52.2 per cent from HK$249, driven by the expectations that its mobile internet business, led by popular social-networking application Weixin, or WeChat, will soon generate revenues.
While its second-quarter earnings missed analysts' expectations, Tencent is forecast to see its shares climb further this year on the back of WeChat.
Tencent reported last month its net profit rose 18.7 per cent to 3.68 billion yuan (HK$4.67 billion) in the three months to June, up from 3.1 billion yuan a year earlier. That was below the 3.9 billion yuan average estimate of analysts polled by Bloomberg.
Shares of Tencent are projected to reach HK$388 this year, higher than the HK$224.60 to HK$380 range they have traded over the 52 weeks to July 31, according to a research note from Barclays.
"We would view any potential share-price weakness as an enhanced opportunity to accumulate the shares. Tencent is strategically positioned to capture the emerging mobile internet growth opportunities," Barclays said.
Led by chairman and chief executive Pony Ma Huateng, Tencent is tapping into the e-commerce field, counting on the popularity of WeChat.
"Though currently online games contribute more than half of its revenue, e-commerce is the future," said Francis Lun Sheung-nim, the managing director of Lyncean Securities.
As the economy on the mainland slows, Beijing is looking for new growth engines in emerging industrial sectors.
E-commerce is one of the most promising ones. Official data reveals that in the first half of this year, the scale of e-commerce has risen to 5.4 trillion yuan, up 38.5 per cent year on year. It is projected that by 2015 such transactions will total 18 trillion yuan, according to a document issued by the State Council.
Ma, 42, is from Guangdong and a graduate of Shenzhen University. He was listed by Forbes last year as the fourth-richest person on the mainland with a personal wealth of US$6.4 billion.
Alan Hellawell, an analyst at Deutsche Bank, said in a research note that Tencent was evolving into a more multi-faceted and interconnected entertainment, social and e-commerce platform.
"We grow more confident in Tencent's monetisation capability, one well beyond its current cash cow of online games, to a more diversified arena in the longer term," Hellawell said.
Tencent has added games and a payment system to WeChat, seen as the first steps to cashing in on its users.
Barclays forecast WeChat to post revenue of 2.95 billion yuan by next year, based on a projected 400 million users. That estimated revenue included 73 per cent from mobile games, 17 per cent from emoticons and 10 per cent from other related mobile-payment transactions, it said.
The future looks quite rosy, but it will not be a smooth journey.
Tencent's ambition to develop in e-commerce has meant a direct confrontation with the country's leading e-commerce company, Alibaba Group.
Competition among internet companies is heating up after Alibaba acquired an 18 per cent stake in web portal Sina's microblogging service, Weibo, for US$586 million in April.
Alibaba suspended sellers' access to WeChat applications this month, while allowing Sina Weibo users to access its website.
Hong Bo, a Beijing-based information-technology industry expert, said Alibaba was "terrified by what Tencent can do in the e-commerce field".
Hong said Alibaba aimed to make users access its platforms Taobao and Tmall directly, not through a third-party channel out of its control. Tencent has also been pressured by telecommunications operators to charge for WeChat. Users are spending far less on voice and text-message services as they move to WeChat, eating into the mobile operators' income.
Outside the mainland, Tencent is hoping to copy its successful WeChat story, although it will compete against rival social mobile apps Line and WhatsApp.
In a conference call with analysts, Tencent management outlined an aggressive international marketing campaign for WeChat this year, with a budget of up to US$200 million.
Tencent said last week that WeChat had surpassed 100 million registered users in international markets.
WeChat's so-called overseas subscriber base included smartphone users in Hong Kong, Taiwan, Macau and India, as well as Southeast Asia, South Africa, and parts of the Middle East and South America.