TCEHY

Tencent Holding Ltd.

35.10
USD
0.06%
35.10
USD
0.06%
33.50 66.03
52 weeks
52 weeks

Mkt Cap 336.64B

Shares Out 9.60B

Chat
Send me real-time posts from this site at my email

Here's Why Investors Are Avoiding Tencent Stock

Once a bedrock of stability and growth, Tencent Holdings Limited (OTC: TCEHY) stock has lost its appeal among investors. From their peak in early 2021, Tencent's shares have dropped by more than 55%. The stock lost over 30% of its value this year alone. Confused (and frustrated) investors -- especially foreign investors -- want to know what caused the share price to plummet. Though we cannot pinpoint the exact reason, we can certainly make some educated guesses. Here are some of mine. Tencent's recent financial performance has been disappointing It is not without reason that Tencent has been a favorite among investors for many years. From its IPO in 2004 to 2021, the company grew its top and bottom lines by a compound annual growth rate (CAGR) of 44%. This impressive performance generated enormous returns for early investors who held on to the stock. Lately, Tencent seems to have lost its Midas touch. In the fourth quarter of 2021, revenue growth slowed to 8% year over year while profit fell 25% on a non-IFRS basis. The tech specialist followed that with another weak performance in the first quarter of 2022: Revenue came in flat while profit plunged 24%. Tencent's recent performance was affected by the slowdown in gaming revenue growth and the decline in advertising income. The latter was severely impacted due to lower advertising income from online education and internet service industries amid the Chinese government crackdown. Moreover, the online advertising industry's regulatory changes further affected advertising revenue. To address these challenges, Chairman and CEO Ma Huateng said that Tencent "has implemented cost control initiatives and rationalized certain non-core businesses, which would enable us to achieve a more optimized cost structure going forward." I like that the management team is addressing its challenges head-on. Yet its decision also signaled that this downturn could last a while. At best, Tencent's good old days of high growth rates might take some time to resume. At worst, they might never. The tech sell-off affected Tencent badly The last few months have been particularly challenging for tech companies. Globally, top tech players like Shopify and Coinbase have seen enormous shrinkage in their market capitalization. Investors who were optimistic about the tech industry just a year ago have made a complete U-turn. The reopening of global economies, rising inflation and interest rates, and the unstable geopolitical environment contributed to this shift in sentiment. Tencent, a massive investor in tech companies, got burned badly amid the sell-off. It owns huge stakes in companies like Pinduoduo, Sea Limited, and Meituan, as well as minority stakes in dozens of companies like Snap and Spotify. These businesses have all seen different levels of impairment in their market caps over the past 12 months. On top of that, Tencent owns investments in non-public companies (such as Epic Games), which probably have seen different degrees of impact in the more challenging macro environment. Tencent's listed portfolio was worth around $95 billion (excluding subsidiaries and private holdings), which is pretty significant given that the company's market value is less than $380 billion as of writing. The tech sell-off, understandably, brought down Tencent's value. Besides, investors who wanted to avoid tech stocks would likely stay away from the company. In short, the recent tech rout delivered a perfect one-two punch to Tencent. Can Tencent's stock price recover in the next few months? The short answer is: Nobody knows. Still, we can make speculative guesses based on the prevailing trends. To this end, a few negative factors are working against a recovery. One of the most substantial headwinds is Prosus' (and its sister company Naspers) decision to gradually reduce their stakes in Tencent. As Tencent's largest shareholder -- with a 29% stake -- Prosus' decision will put massive downward pressure on the stock. Besides, the Chinese government crackdown on tech companies is ongoing, keeping investors nervous -- and away from companies like Tencent. With the uncertain nature of Chinese government regulations, a long-term outlook is nearly impossible to measure. So unless Tencent reports significant positive news, like a massive turnaround in its financial performance, the pessimism could linger for a while. 10 stocks we like better than Tencent Holdings When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Tencent Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 27, 2022 Lawrence Nga has positions in Pinduoduo Inc. and Sea Limited. The Motley Fool has positions in and recommends Coinbase Global, Inc., Sea Limited, Shopify, Spotify Technology, and Tencent Holdings. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue