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Tencent is a Major Player in China’s Internet Market

 

Stock (Symbol)

Tencent Holdings (TCEHY)

Stock Price

$25

Sector
Technology
Data is as of
January 8, 2017
Expected to Report
Mar 22
Company Description
tencentTencent Holdings Limited is an investment holding company. The Company and its subsidiaries are principally engaged in the provision of Internet and mobile value-added services (VAS), online advertising services and eCommerce transactions services to users in the People’s Republic of China. The Company operates in four segments: VAS, Online advertising, eCommerce transactions, and Others. It also engages in the provision of trademark licensing, software development services and sales of software. Its subsidiaries includes Tencent Computer, Tencent Technology, Shiji Kaixuan, Tencent Cyber (Tianjin) Company Limited (Cyber Tianjin), Tencent Asset Management Limited, among others. Source: Thomson Financial
Sharek’s Take
David SharekFounded in 1998, Tencent (TCEHY) has grown into China’s largest and most used internet service portal, bringing together China’s largest Internet community. Tencent’s brands include WeChat, QQ Instant Messenger, QQ Music, QQ Games, Qzone, and Tenpay. WeChat is probably the company’s most well-known brand in America as it’s a version of Whatsapp that’s popular within the Asian community to text and make free calls. Tencent is derives 45% of its revenue from online video games. Tencent & Netease control around 3/4 of China’s mobile game market. Last qtr TCEHY’s mobile game revenue jumped 87% as PC game revenue increased 10%. Tencent’s second biggest division is social networks with 24% sales, where users pay for content like music and movies and can subscribe to skip ads. Online ads is the third largest division and provided 18% of total company sales last qtr, with 51% growth year-over-year. The company also other revenue of 12% which grew 348% and includes things like electronic payments and cloud services. Although Tencent isn’t a familiar name with American investors, the stock has risen steadily from $1.50 to $25 since it went public in 2008 as profit growth averaged of 40% per year. Still, the stock sells for a reasonable 37x earnings. My Fair Value is 38x earnings, which equates to 33% upside this year and 67% upside for 2018. 
One Year Chart
Tencent’s profits have grown an average of 33% the last 4 qtrs, and are estimated to climb 44% the next 4 qtrs. Last qtr TCEHY delivered 52% revenue growth and 33% profit growth, which missed estimates of 50% profit growth. The company claims it had 42% profit growth. We have to translate CNY to USD when doing our charts, and that has an effect on our reported profits and skew our numbers. Afterwards, analysts kept estimates rather steady. Profit Growth Estimates for the next 4 qtrs are 64%, 40%, 29% and 44%. The stock has a very high Est. LTG of 32% and the P/E of 37 is quite reasonable for this type or growth.
Fair Value
For the second straight qtr the Profit History table just looks perfect, with both profits and the median stock price up every year without fail. The P/E has been around 38 to 40 the past four years, thus my Fair Value P/E is 38. 
Bottom Line
Tencent has been a solid, steady riser since the stock went public in 2008, and with profits expected to climb more than 40% during the next year I feel the stock can continue on its current trajectory. This company is in the sweet spot of Internet activity, with online games, online ads, movies, music and even electronic payments and cloud services. TCEHY ranks 9tth in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

9 of 34

Aggressive Growth Portfolio

9 of 18

Conservative Stock Portfolio

N/A

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