YWR: Tencent's Path to HKD $1000/share
The Dirty Div’s are doing well, but our new project is to accumulate a handful of multi-year growth home runs.
In Tesla @ $550/share we identified 5 ingredients we want in a growth stock:
Founder CEO
Innovation
Market share gains
A crazy target
An entry point
Tencent ($TCEHY, 700 HK) is at an interesting inflection point and checks the boxes.
Let me explain.
Tencent is China’s biggest tech stock with a market cap of $430 billion, but its collection of businesses can sometimes be difficult to understand. It’s a mix of Chinese video games, international video games (League of Legends, PUBG), social media (QQ), advertising, streaming music (Tencent Music $TME), and WeChat (messaging, social media and payments).
How all these things go together hasn’t mattered much for the last 15 years, because everything was growing.
Then in 2021 Tencent hit an inflection point; an inflection point I’d worried would happen for years, but never materialised. The video games business went ex-growth. And social media did too (that I didn’t expect).
The revenue slowdown combined with China’s recession and regulatory crackdowns across the space (new video game licensing, Ant IPO, Jack Ma, For-profit Education) caused a 50% crash in Tencent and Chinese tech stocks in general. A crash from which they still haven’t recovered.
Which gives us ingredient #5: an entry point.
We also have ingredient #1: Tencent is still run by Pony Ma, the original founder. Pony Ma founded Tencent as a messaging app in 1998 and over time turned it into an ecosystem of games, media content, social networking, messaging and payments. During the recent revenue slowdown Ma has been good at controlling costs, expanding margins and growing the EPS. He’s also using Tencent’s consistent cashflow to buy back HK$ 100bn of shares in 2024.
The Globalisation of WeChat
Now we get to the YWR differentiated view on Tencent.
We’ve all heard the stories/seen the Twitter posts of the person who goes on a trip to China and says how they had to use WeChat for everything. They had to use WeChat to pay for restaurants, buy train tickets, etc. All of China runs on WeChat. It’s an all in one super app with payments, chat, social media and shopping. Chinese do everything on it.
Fine. Chinese people use WeChat and if you go to China you have to use it too, but who goes to China anymore? The rest of the world doesn’t use WeChat.
Or does it? And that’s the opportunity.
What if WeChat isn’t just for Chinese?
