Tencent (0700.HK)

Investment Opportunity?

Brand value? Products: QQ, WeChat, Tencent. Games include Honour of Kings, Legend of Yulong Mobile, Naruto Mobile, League of Legends. #1 iOS global grossing game developer.

Use of new technology to disrupt? Payment services. Tencet AI lab. Despite negligible change in monthly active users, Tencent are using data mining techniques to increase gaming revenue per user.

Sympathy/spillover effect on valuation? Nothing obvious.

Trading Opportunity?

Potential sector or index selling? Being such a prominent brand its likely to be the cause and not the effect of sector buying/selling.

Under/over-reaction to news?

  • Earnings is the only obvious market moving news lately


  • Revenues growing at 60+% in 2017, profits growing at 40+%
  • Approx splits: 50% from online games (half mobile, half PC), 25% from social networks and 25% from online advertising
  • Gaming industry super competitive but Tencent is currently global leader

tencent revenues.PNG


  • Stepped up effort to ensure users play games in a healthy manner
  • Increasing investment in cloud services and AI technology to further increase revenue per active user

Approximate Valuation

  • Too much brand value to determine precise valuation
  • Gaming revenue has been enhanced by introducing more P2P action, creating a network effect
  • Operating cash flows in line with operating profit (operating margin is 40%)
  • Spending approx 40b RMB annually on net investing + financing cash flows or reinvesting approx 15% of revenue


  • News related to revenue growth expectations
  • Mobile game competitors

tencent intrinsic valuetencent valuation