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Tencent

Has Tencent lost its creative mojo? Essay sparks heated online debate in China

Online debate ignites over whether Chinese tech giant is focused too much on investments and not enough on product development

PUBLISHED : Monday, 07 May, 2018, 1:38pm
UPDATED : Monday, 07 May, 2018, 10:18pm

An online essay criticising Chinese internet giant Tencent Holdings for driving growth these days through investments rather than original innovation has sparked a heated debate in China, with rival technology company CEOs weighing in to voice their opinions.

The essay, published by a WeChat media group called Luan Fa Shu and titled “Has Tencent lost its dream?”, was read more than 100,000 times over the weekend.

“Tencent is becoming an investment company … Its strength is not developing products but [rather] investment skill,” according to the essay, which was written by Pan Luan, a former editor at local Chinese tech media Huxiu

“Tencent has not made great products in some core areas such as search, e-commerce, information streaming, short video and cloud,” he wrote. 

Tencent’s products dominate the country’s internet and media landscape, including instant-messaging software service QQ and social media platform WeChat, which recently topped 1 billion monthly active users. The Shenzhen-based firm has been expanding into different sectors including e-commerce and automobiles, with analysts attributing its investment strategy as a key factor behind its 10-fold increase in market valuation since 2011.

Several of China’s tech CEOs weighed in on the debate. “It is good to have this piece. Concerns and scepticism will make the world better,” said Yao Jinbo, chief executive officer of 58.com, a major Chinese online marketplace. 

Zhang Yiming, founder and chief executive of ByteDance, defended Tencent by forwarding an article refuting the criticism by Luan Fa Shu. “Tencent is improving in every aspect and I hope the company will drive China’s internet industry to improve,” the comment said. 

“Tencent is an extremely excellent company. Pony [Ma] is the CEO that I admire the most,” Zhang wrote on his company’s own Wei Toutiao social media platform.

The debate was further stirred by what was purported to be a reply by Tencent founder Pony Ma Huateng, saying it was “good to get some criticism”, which turned out to be a fake, according to the company. 

Tencent did not immediately respond to a request for comment.

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The increasing reliance on investments was also reflected in comments from Tencent’s senior management during an earnings call for its annual 2017 results. Company president Martin Lau Chi-ping said that this year Tencent would aggressively step up its investments in video, digital payments, cloud services, artificial intelligence and smart retail even though it could harm the company’s profitability in the short term. “We believe these investments will probably negatively impact our near-term profitability, but will generate long-term value and new growth opportunities for the future,” he said. 

Over the past year Tencent has completed 66 deals involving direct investments and mergers and acquisitions, according to Bloomberg data. Last week it led a US$820 million round of funding in Shenzhen-based UBTECH Robotics, making the start-up the world’s most valuable in artificial intelligence with an estimated valuation of US$5 billion.

In the video content sector, Tencent invested US$632 million and US$461.6 million respectively in rival Chinese game-streaming platforms Douyu and Huya on the same day in March. The following month it led an investment of 617 million yuan in Pear Video, an online short video platform, that counts the listed unit of People’s Daily as a shareholder.

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Tencent is set to announce its 2018 first quarter earnings on May 16. Its revenue is forecast to jump 42.4 per cent to about 70.5 billion yuan (US$11.1 billion) from 49.6 billion yuan a year earlier, according to the consensus estimate from a Bloomberg survey of analysts. The company is also expected to report a 29.1 per cent year on year increase in net profit to 18.3 billion yuan in the quarter ended March 31, consensus estimates show. 

However, Tencent may disappoint market estimates on profit as its mobile games business “enters a monetisation void”, according to Ling Vey-sern, a senior internet analyst at Bloomberg Intelligence. Tencent’s blockbuster title Honour of Kings is maturing while new hits including the PlayerUnknown's Battlegrounds mobile version are still in the early stage of monetisation, Ling wrote in a note.

Listed on the Hong Kong stock exchange in 2004 at HK$3.7, Tencent has seen its shares increase over 640-fold, after taking a 2014 stock split into consideration, to a peak of HK$476.6 on January 29 this year. Since then it has fallen up to 20 per cent, closing Monday’s trading at HK$380 with a market capitalization of HK$3.6 trillion (US$460 million).

Tencent competes with rival Chinese tech giant Alibaba Group in a number of areas including mobile payments, online video content and brick and mortar retail. Alibaba, listed in New York, had a market cap of US$467 million at the close on Friday US time.

Alibaba is the parent company of the South China Morning Post.