Pony Ma loses US$710 million as Facebook rout weighs on shares of Chinese social media giant Tencent

Tencent shares have plunged by 22 per cent since January, wiping off about HK$1 trillion in market value

PUBLISHED : Friday, 27 July, 2018, 7:38pm
UPDATED : Friday, 27 July, 2018, 10:52pm

Pony Ma Huateng, the founder of Tencent Holdings and China’s second-richest man, has lost HK$5.6 billion (US$710 million) in the last two days, after Tencent stock took a beating along with other social media operators.

Shares in the social media and gaming giant dropped by a combined 1.8 per cent on Thursday and Friday, trading at HK$373.00 by Friday’s close. Pony Ma, who owns about 820 million shares of Tencent, lost about HK$5.6 billion in the process. His current net worth stands at US$37.9 billion, next to Alibaba Group Holding chairman Jack Ma Yun’s US$44.6 billion on the Chinese billionaires list, according to data compiled by Bloomberg.

The company has already suffered a steep fall in share prices this year. Compared with its peak of HK$476.60 a share in January, it has lost 22 per cent, erasing HK$985 billion off its market value.

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On Thursday, US social media behemoth Facebook dropped by about 19 per cent, wiping out US$120 billion in market cap in a single day – the biggest one-day loss in a company’s value in US market history. The plunge was triggered by weaker than expected key metrics at Facebook. More importantly, the company’s management warned that growth in future revenue could slow significantly in the wake of the European Union’s new data privacy laws and the Cambridge Analytica scandal.

The plunge hurt other social media rivals too, with Twitter tumbling by 2.9 per cent on Thursday. The huge loss at Facebook has triggered concerns that growth and valuations at social media companies might have peaked.

Social media has peaked. We told you last quarter and now we’re seeing
Ross Gerber, CEO, Gerber Kawasaki Wealth and Investment Management

Ross Gerber, chief executive at Gerber Kawasaki Wealth and Investment Management, said Facebook’s figures suggested it may be a turning point for it and other social media companies. “Social media has peaked. We told you last quarter and now we’re seeing it,” he said on Twitter.

The reasons for the stock fall at Tencent, China’s largest social media company, were more complex, according to fund managers and analysts.

“Facebook’s plunge has dragged down Tencent this week, but the Chinese internet company has already suffered selling pressure in the past few months,” said Alex Wong, a fund manager at Ample Capital. “Amid the current US-China trade battle, investors may not be willing to give Tencent such a high valuation.”

Wong said the Chinese technology sector has in general underperformed its US counterparts amid the two countries’ escalating trade tensions, as many of them rely on US technologies and intellectual property.

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Tencent, as a leading Chinese technology company listed in Hong Kong, has become “the first to bear the brunt” and suffer massive fund outflows. For the past eight trading sessions, more than US$2.8 billion have flowed out of Tencent from mainland China via the Stock Connect schemes, according to Haitong International Securities, a brokerage.

Last year, Tencent shares soared by 114 per cent to become the first Chinese company to top US$500 billion in value. In 2018, it reached a peak of HK$476.60 on January 29, before soon entering a downward trajectory. In late June, Tencent technically entered bear market territory, having shed more than 20 per cent from its January peak. It currently trades at a price to earnings ratio of 38.

The company has its own problems too, as its core gaming business faces the difficult question of “how to monetise users”, said Ample Capital’s Wong.

Nine investment banks recently cut their target price for Tencent, worrying its core revenue driver – its gaming business – will face a further decline in the second quarter. Deutsche Bank, the latest among them, slashed its target price for Tencent by 12 per cent to HK$452 in a report on Thursday.

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Analysts at the German investment bank said Tencent had been plagued by three issues – expected revenue decline in mobile gaming in the second quarter, a drop in revenue at online payment platform Tenpay and a loss in market share in digital content services.

But it was not all pessimistic, with the bank forecasting Tencent’s mobile gaming revenue to recover in the third quarter.

Castor Pang, head of research at financial services company Core Pacific-Yamaichi International, said Tencent’s stock might drop further in the short term to a low of HK$364, but could rebound later this year if it books earnings from its spun off businesses, including Tencent Music, which is set for a US listing.

Tencent is expected to announce results on August 15.