China’s largest online gaming and social media network

The technology giant is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services and e-payments/e-commerce. Although the monetisation of some of its newer businesses is at an early stage and the majority of revenue is still from gaming, we believe that consumers will eventually start to pay more for services such as videos and music, and corporates should therefore start spending more on advertising.

Tencent has shown it is capable of innovation and proactive in terms of regulations. The platform has grown significantly over the years, but it now faces a more normalised growth outlook as its existing businesses start to mature and the new businesses have yet to reach critical mass. The company has been divesting maturing investments to unlock value and raise cash. Growth could remain challenging in 2022 with the policy overhang, but beyond that we believe the management will continue to grow the newer businesses and invest in the future of the company. Meanwhile the regulatory challenges, which have been ongoing for the past two years, have started to ease. New game approvals restarted in April 2022 and although Tencent was not awarded any new licenses in these recent rounds, we think it is only a matter of time.