Tencent Stock Should Continue to Ride atop the Digital Era
Today’s stock is a very good example of one of our favorite investing strategies for growth stocks. It involves investing in stocks that stand to gain substantially from the rise of China. Users taking advantage of rising Internet access and increased disposable income could catapult such stocks to great heights, giving investors opportunities to reap triple-digit returns.
Case in point: Tencent Holdings Ltd(OTCMKTS:TCEHY), which is a Chinese multinational investment holding conglomerate. Its subsidiaries dominate in different Internet-related services and products in China and around the world. Its popular messaging app “WeChat” has more than 950 million monthly active users and is growing in the double digits, pushing TCEHY stock higher.
The company has been focused on its “Connection” strategy that is all about making its social platforms more interactive for users and connecting these platforms to a broader range of online and offline services.
Tencent enjoys a leadership position as the largest game operator and publishing platform in China, operating all three top PC client games in China, namely League of Legends, Dungeon & Fighter (now called Dungeon Fighter), and CrossFire. Also, the company is the top smartphone game publisher in China.
Its payment-related services are a force to be reckoned with in a hugely growing market of mobile payments in China. Tencent’s “WeChat Pay” app commands almost 40% of the market share in China, and the company has plans to roll out this service in other countries. This bodes well for Tencent stock.
Tencent has been aggressively investing in order to post high double-digit growth.
Just last week, Tencent announced that, along with JD.Com Inc (ADR) (NASDAQ:JD), it is buying a minority stake in Better Life Commercial Chain Share Co Ltd, a Chinese retail chain. The top tech firms in China, like Alibaba Group Holding Ltd (NYSE:BABA) and Tencent, are aggressively investing to increase their share of the digital commerce market, which is growing phenomenally. (Source: “Tencent, JD.com buy stakes in Chinese retail chain,” Reuters, February 23, 2018.)
Moreover, Tencent is investing in artificial intelligence (AI) and machine learning to position its Connection strategy for the future. The company intends to use machine learning to personalize recommendations within its digital content services, sharpen its advertising targeting capability, enrich social interactions, and save costs.
This would further strengthen the strong ecosystem that Tencent has built over the last 10 years. This will expand more with technological advancements and the improving digital economy in China, giving a further push to TCEHY stock.
In less than 10 years, China has emerged as the world leader in e-commerce. The country has about 730 million Internet users and accounts for 40% of global retail e-commerce. Its mobile payment market is about 11 times the size of the U.S. market. (Source: This Is Only the Beginning for China’s Explosive E-Commerce Growth, Fortune, December 5, 2017)
At the “Brainstorm Tech International Conference” in Guangzhou, China, Jonathan Woetzel of McKinsey & Company, Inc. said, “Whether we’re talking about transactions, technology, or money, China really stands out.” (Source: Ibid.)
Tencent has made a number of investments in homegrown and international Internet businesses. In the growing market of India, it has invested in valuable Internet companies like Flipkart Internet Private Limited and Ola (otherwise known as ANI Technologies Pvt. Ltd). Tencent also has stakes in companies like Tesla Inc (NASDAQ:TSLA), Snap Inc (NYSE:SNAP), and Twitter Inc (NYSE:TWTR).
Hence, the Internet giant not only stands to grow due to its business segments, but also from its gains in its investments in other companies. This makes the prospects for Tencent stock brighter.
The company announced its third-quarter results in November 2017. Total revenues reported were $9.8 trillion, an increase of 61% year-over-year. Operating profit went up by 57% year-over-year.
The quarter saw strong growth across business segments such as games, digital content, online advertising, and payment-related services. Its video platform especially penetrated the market further and emerged as China’s top online video platform in terms of mobile daily active users and subscriptions.
The company’s improving performance has been reflected in its stock price, which continues to go nowhere but up. TCEHY stock has been one of the best-performing stocks in the last five years. The company’s current market capitalization stands at over $500.0 billion. Tencent stock has gone up by more than 100% over the last year. The following stock chart shows this stellar rise.
Chart courtesy of StockCharts.com
Given its leadership position in gaming and the huge potential in the financial technology (fintech) business, TCEHY stock still has plenty of room to grow.
Tencent Holdings Ltd is a leading provider of Internet value-added services in China and has been making investments globally in promising Internet enterprises. The upside to Tencent stock appears to be substantial as its businesses are on track to keep growing in double digits for many years to come. The reason is that they operate in business segments which are growing and have huge future potential.