Chinese markets are set for a strong 2021, with a current market capitalisation of US$15 trillion. Tencent, which went public in 2004, is one of the companies driving this boom. As one of the world's top web companies, TENCENT provides a wide range of services, including social networking, web portals, online shopping, multiplayer online games, and online advertising.
Although investing in Tencent shares has several advantages, including the right to collect dividends, it is important to be aware of the potential and risks of Tencent stock before making an investment decision.
The History of Tencent Stock
Founded in 1998 in Shenzhen, China, the TENCENT brand, owned by Tencent Holdings, has over 67 sister brands. Tencent Holdings is known for its Internet and online advertising services. Its instant messaging service Tencent QQ and its messaging application WeChat are part of its portfolio of services. Tencent QQ was the world's most active online community in 2010, with 647.6 million instant messaging accounts.
In the three years following its creation by Ma Huateng and Zhang Zhidong, the company, formerly known as Tencent Inc., made considerable losses. The South African group Naspers bought 46% of the company in 2001.
Its main income came from advertising on the networks and from QQ premium users, who received additional services for a monthly subscription fee. Company revenue increased in 2005 with fees for the use of its mobile phone service and the licensing of its logo for the sale of food and clothing.
In 2008, the company also became involved in the sale of virtual goods. The acquisition of South Korean game licenses allowed it to increase its offer.
The Tencent Business Model
As part of its expansion, Tencent bought 15% of Glu Mobile for $126 million in 2015, and around 5-10% of Skydance Media in 2017.
One of its biggest external growths, however, remains that of 2016 when the company, along with ESPN, launched a Mandarin sports commentary service for sporting events and acquired a significant stake in Supercell for $6.6 billion. The company’s recent acquisitions include a 12% stake in Snap Inc. in 2017, a 20% stake in Universal Music Group and 39.2% of Sogou in 2020.
Tencent is now valued at $538 billion and employs nearly 80,000 people across the world. It derives 53% of its revenue from value-added community services and internet and mobile applications, 26.9% from FinTech and 18.6% from online advertising.
Initial Public Offering and Share Price
Tencent shares were listed on the Hong Kong Stock Exchange on 16 June 2004 and on the Hang Seng Index in 2008. In 2017, the company entered the top 10 largest market capitalisations in the world.
With the share price currently at EUR 81.50, this has increased by 67.66% from 2020 and 439.70% over the last 5 years. The annualised dividend per share is now 0.17%.
Which Factors Affect Share Prices?
Intensive daily use of the Internet in China, as elsewhere in the world, contributes to the revenue of web operators. With the diversification of offerings and the changing needs of customers, Tencent's scope for innovation is wide, which can positively influence share prices. However, competition is tough.
Operating alongside NetEase Inc, Badu, Alibaba, Google and other Chinese giants and major international competitors, Tencent needs to maintain constant development to assert its market position. Possible discoveries and patent applications may also work in its favour, given the company's significant investment in technological research.
Despite the considerable economic impact of the global health crisis, the Chinese market has recovered quickly. The world is witnessing a resumption of growth by Chinese companies, while American and European companies are still struggling. This is reassuring for investors looking to buy Tencent shares.
The company's growth in recent years is another factor attracting investors. The company also pays dividends, providing a quick return on investment.