Tencent M&A in overdrive with reported handset bid
Tencent's reported pursuit of a mobile phone maker reflects a growing lack of focus as it tries to expand beyond its core SNS and gaming strengths to justify its high valuation
China's "Big Three" Internet companies have all embarked on a major buying spree over the last year, with Tencent, Baidu (Nasdaq: BIDU) and Alibaba snapping up billions of dollars in acquisitions as China's Internet undergoes a much-needed consolidation. But of the three companies, Tencent was relatively conservative until recently, making only a limited number of purchases mostly in areas closely related to its core gaming and social networking services (SNS) businesses.
With all that negative history, it's hard to see why Tencent might want to chase a similar deal, even if its targets are much smaller and don't have the same troubled history as Motorola. One reason Tencent is probably chasing this deal and others with increasing distance from its core competency is market expectation. Put simply, the company is probably feeling incredible pressure to justify its current market value of $140 billion, which owes to a 4-fold increase in its share price over the last two years alone. The company is now one of the world's most valuable Internet companies, even though its business is currently all in China.
Obviously a company needs to expand beyond its core business to keep growing, which is what Alibaba, Baidu and now Tencent are all trying to do to justify their high valuations. Google has also taken such an approach, moving beyond its original search business to become the Microsoft (Nasdaq: MSFT) Windows of the smartphone sector with its popular Android operating system (OS). But the expansion strategies of Alibaba, Baidu and now Tencent look much less focused, and are also highly dependent on major M&A. That could lead to headaches in the future, as many of these big investments turn into new cases similar to Google's Motorola hangover.
Bottom line: Tencent's reported pursuit of a mobile phone maker reflects a growing lack of focus as it tries to expand beyond its core SNS and gaming strengths to justify its high valuation