Company Profile Tencent Holdings Ltd.
Transcript of Company Profile Tencent Holdings Ltd.
Hyperion Asset Management
Company Profile Tencent Holdings Ltd. XRO-AU
Main Business Activities
Tencent Holdings Ltd. (Tencent) operates the largest social networks in China through its WeChat/Weixin messaging app which
has over 1.26 billion monthly active users (MAUs), QQ instant messaging platform for PC and mobile which has approximately 600
million smart device MAUs, and Q-Zone social networking platform which has over 550 million smart device MAUs as of FY20.
Tencent leverages this large user base to monetise additional services, initially gaming but has moved into online advertising and
payments. WeChat pay is now the largest, by users, payment solution in China, with WeChat pay and Alipay (owned by Alibaba
Group Holding Ltd) having a duopoly in the Chinese market. Tencent also has the biggest gaming business by revenue in the
world. This has been driven by names such as League of Legends, Dungeon & Fighter, Crossfire, and Clash of Clans.
Furthermore, not only does Tencent release its own games, it is a leading player at helping other intellectual property (IP) holders
in releasing their titles on mobile platforms such as cooperation with Krafton on PUBG mobile and Activision blizzard on call of
duty mobile.
Tencent has the largest ecosystem globally for its users, with Tencent often described as the "Google, Facebook, Netflix, and
Spotify of China" all in the one conglomerate. Tencent operates MyApp, the number one app store in China, a video subscription
service (like Netflix), QQ music (like Spotify), Tencent video (like YouTube), QQ mail, (like Gmail), QQ browser (like Google), QQ
maps (like Google Maps), eLong (like Expedia), Weipiao (like Ticketmaster), Tencent sports (like ESPN), and operates a cloud
computing business.
Within WeChat, Tencent has developed 'mini programs' which are sub-apps within WeChat. This allows third party companies to
develop mini programs providing advanced features to users within the WeChat app and not needing to open another app.
Examples of mini programs include Pinduoduo, Qunar, Starbucks, Tencent translator, DiDi, 58.com, JD.com, and luxury brands.
Tencent also owns a large investment portfolio including stakes in Tesla Inc, Afterpay Ltd, JD.com, Pinduoduo, (e-commerce),
58.com (a horizontal classifieds portal), Spotify, Universal Music, TME (Music), Snap Inc. (Social Media), WeBank (Banking)
Meituan Dianping (UberEATS equivalent) and DiDI (Uber equivalent), on which WeChat pay is the default payment option, just to
name a few.
Key Value Proposition to Customers
Tencent provides a very strong value proposition to users as WeChat is ingrained in close to 80% of the Chinese population's
lives. Users spend more than 4 hours per day, which is more time than U.S. users spend on all social media apps combined.
WeChat users engage with the app through messaging, sharing, videos, gaming, and viewing content on the properties where
their friends are most active. It would be virtually impossible to live in Beijing without the WeChat app. The key ways that people
use WeChat are: Payments with over 1 billion WeChat Pay commercial transactions per day; for work as it is the main
communication tool for employees, with over 85% of WeChat users use the general app for work and WeChat Work is used by 2.5
million companies and 60 million MAU; to communicate with friends; to scan QR codes to add a new friend and have quick access
to a wide range of information and services; and use WeChat moments (newsfeed), with over 750 million daily users. WeChat has
also been integral during COVID-19 through contact tracing with 8 billion visits to 'WeChat visits' by users getting ‘health codes’
needed to travel around China during the coronavirus pandemic. Additionally, WeChat provides public services information with
over 250,000 users use WeChat to access bus/metro services every minute during the morning rush hour.
The strength of Tencent's value proposition to the Chinese public is evident by it being the largest gaming company in the world,
with the number one online gaming platform across both PC and mobile in China; number one smart phone community with
WeChat; number one mobile browser by MAU; number one mobile security tool; the most popular long form video by daily active
users (DAUs); number one news service by MAU; most popular music platform; number one online content library and publishing
forum platform; number one by MAU and DAU in mobile payments; and second in the Cloud. No other company has the level of
market dominance across so many industries.
Tencent's value proposition to advertisers is its large, engaged user base. Tencent offers online advertisers a large, engaged
userbase, improved targeting and more measurable return on investment compared to traditional advertising mediums.
Tencent's value proposition to game developers is that it offers the largest engaged user base in China and provides access to the
largest gaming market globally. Tencent also regularly invests in game developers and has even provided protection against
hostile takeovers. Tencent allows game developers to produces games with little input, providing them with scale, capital, and a
distribution network.
Tencent's value proposition to gamers is that Tencent owns some of the most popular video games globally either directly or
indirectly through its investments. This includes the two most played PC games globally and the two most played mobile games in
China and the number one mobile game globally. These titles include: League of Legends, the most popular PC game in the world
(Riot Games, 100%); Fortnite, the most-played game globally with 3.8 billion cumulative days played (Epic Games, 40%);
PlayerUnknown's Battlegrounds, the most played mobile game in the world (Bluehole, 11.5%); The Call of Duty franchise, the
most successful franchise created in the U.S. and the third highest-grossing video game franchise of all time, World of Warcraft
which is the second most popular PC game globally (Activision Blizzard, 5%); Honor of Kings, which has the highest consumer
spend in mobile games (100% owned and developed by Tencent).
Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained are estimates only and may not be realised in the future. Returns from investments may fluctuate and past performance is not a reliable indicator of future performance.
Publication Date: June 2021
Overall Company Growth Options
Tencent has significant organic growth options by monetising its large and growing user base (over 1.2 billion WeChat users in
FY20). In Gaming, Tencent has a dominant market share in China and is leveraging its international partners, which it has
invested in, to increase penetration globally. Additionally, Tencent is investing in their own studios to create their own titles.
Furthermore, Tencent is the best positioned to benefit from the strong growth in mobile and cloud gaming, while also being the
gatekeeper to the largest gaming market in the world, China. Top new games to be released in FY21 that will drive growth include
League of Legends: Wild Rift (most downloaded app in all regions that received beta access after only 3 days of release), Dawn
Awakening (over 1 million pre-registrations), Diablo Immortal, Mobile Dungeon&Fighter, with 40 other games in development.
Growth from advertising will be driven by the many different platforms advertisers have to choose from and also the largest user
base available in China, which is highly engaged. The Chinese online advertising market is still in its infancy relative to the US
(WeChat users see much fewer ads than Facebook or Instagram users), however, is growing strongly.
Tencent's growth in Fintech will come from multiple places. WeChat pay is the leading payments platform in China, with greater
penetration than Alipay, however, Alipay does have more transaction volumes than WeChat Pay. These two companies are
effectively a duopoly in China, which is leading the way in the transition to a cashless society. Growth will be driven by the growing
middle class and in turn, more users. Additionally, the recent new draft rules for online micro-lending that have impacted ANT
group, may provide an opportunity for Tencent to increase its loan business as it is better positioned to meet these new rules
through its 30% ownership of Webank which has a banking license in China. Furthermore, growth will also be driven by Tencent
leveraging its user base to increase personal investment, which is being encouraged by the Chinese government, by using
Tencent's wealth management products.
Tencent's Cloud business is a medium to long-term growth opportunity as it is currently investing heavily due to entering the
market late in 2012. This allowed Alibaba to build a dominant market share prior to Tencent. However, Tencent announced it
would spend US$70 billion in technology infrastructure including, cloud computing, to build a viable alternative to Alibaba. As we
have seen in the US and globally, there is room for more than one cloud player and as China's economy transitions to the cloud,
Hyperion believe it should provide strong growth for Tencent. Tencent is currently more focused on consumer centric products
versus Alibaba's business to business products (B2B). Hyperion believe cloud computing could be a strong catalyst for growth as
Tencent has partnered with Intel to provide Tencent Instant Play.
A longer-term growth opportunity for Tencent is 'The Metaverse' as no other company is better positioned to benefit from the
possible transition to the Metaverse. The Metaverse is defined as a place that will be an always-on, real-time world in which an
unlimited number of people can participate at the same time. It will have a fully functioning economy and span the physical and
digital worlds. The metaverse will seamlessly provide multiple platforms on which we socialize, work, and consume, merging
augmented reality (AR), virtual reality (VR), audio, the internet, and the physical world. Tencent fully or partially owns key players
in each, including Epic Games, Inc., Snap Inc., Spotify Technology, WeChat, and even physical retail.
Tencent provides a very strong value proposition to users as WeChat is ingrained in close to 80% of the Chinese population's
lives. Users spend more than 4 hours per day, which is more time than U.S. users spend on all social media apps combined.
WeChat users engage with the app through messaging, sharing, videos, gaming, and viewing content on the properties where
their friends are most active. It would be virtually impossible to live in Beijing without the WeChat app. The key ways that people
use WeChat are: Payments with over 1 billion WeChat Pay commercial transactions per day; for work as it is the main
communication tool for employees, with over 85% of WeChat users use the general app for work and WeChat Work is used by 2.5
million companies and 60 million MAU; to communicate with friends; to scan QR codes to add a new friend and have quick access
to a wide range of information and services; and use WeChat moments (newsfeed), with over 750 million daily users. WeChat has
also been integral during COVID-19 through contact tracing with 8 billion visits to 'WeChat visits' by users getting ‘health codes’
needed to travel around China during the coronavirus pandemic. Additionally, WeChat provides public services information with
over 250,000 users use WeChat to access bus/metro services every minute during the morning rush hour.
The strength of Tencent's value proposition to the Chinese public is evident by it being the largest gaming company in the world,
with the number one online gaming platform across both PC and mobile in China; number one smart phone community with
WeChat; number one mobile browser by MAU; number one mobile security tool; the most popular long form video by daily active
users (DAUs); number one news service by MAU; most popular music platform; number one online content library and publishing
forum platform; number one by MAU and DAU in mobile payments; and second in the Cloud. No other company has the level of
market dominance across so many industries.
Tencent's value proposition to advertisers is its large, engaged user base. Tencent offers online advertisers a large, engaged
userbase, improved targeting and more measurable return on investment compared to traditional advertising mediums.
Tencent's value proposition to game developers is that it offers the largest engaged user base in China and provides access to the
largest gaming market globally. Tencent also regularly invests in game developers and has even provided protection against
hostile takeovers. Tencent allows game developers to produces games with little input, providing them with scale, capital, and a
distribution network.
Tencent's value proposition to gamers is that Tencent owns some of the most popular video games globally either directly or
indirectly through its investments. This includes the two most played PC games globally and the two most played mobile games in
China and the number one mobile game globally. These titles include: League of Legends, the most popular PC game in the world
(Riot Games, 100%); Fortnite, the most-played game globally with 3.8 billion cumulative days played (Epic Games, 40%);
PlayerUnknown's Battlegrounds, the most played mobile game in the world (Bluehole, 11.5%); The Call of Duty franchise, the
most successful franchise created in the U.S. and the third highest-grossing video game franchise of all time, World of Warcraft
which is the second most popular PC game globally (Activision Blizzard, 5%); Honor of Kings, which has the highest consumer
spend in mobile games (100% owned and developed by Tencent).
Sustainable Competitive Advantages and Outlook
Tencent's competitive advantage is its large, engaged user base that it can leverage through additional services, primarily gaming,
online advertising and payments. Tencent also has scale advantages given its high market share in gaming and this will likely
increase in the future with expected market share gains in both payments and online advertising. Examples of this includes its
investment in Pinduoduo, which enhances the usage and stickiness of WeChat, providing a positive and powerful feedback loop,
which in turn increases the return of its investment. Similarly, Tencent's investments in game-play streaming platforms Huya and
Douyu help to enhance interests in its games which in turn increase the traffic for two of its investments. Using its data, Tencent
can evaluate the best performing mini-programs, invest in the company, and then boost the company’s distribution through
preferential placement on Official Accounts, Mini Programs, and within WeChat.
Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained are estimates only and may not be realised in the future. Returns from investments may fluctuate and past performance is not a reliable indicator of future performance.
Publication Date: June 2021
Important Disclaimers
For Recipients in Australia: This report has been issued and distributed by Hyperion Asset Management Ltd
(ABN 80 080 135 897) (AFSL 238380). Hyperion Asset Management Ltd is the provider of the general
advice (‘the Service’) and takes responsibility for the production of this report. The Service is provided
through the research of investment securities.
To the extent the Report contains general advice it has been prepared without reference to an investor’s
objectives, financial situation or needs. Investors should consider the advice in light of these matters and, if
applicable, the relevant Product Disclosure Statement before making any decision to invest. Refer to our
Financial Services Guide (FSG) for more information at https://www.hyperion.com.au/fsg/
Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained are estimates only and may not be realised in the future. Returns from investments may fluctuate and past performance is not a reliable indicator of future performance.
Publication Date: June 2021