Wall Street analysts are on average expecting Tencent to make $1.66 in earnings per share during 2019. Our strategy is to put this data in the hands of several thousand data scientists, who can use it to make our products better and to better target advertising on our platform.” That unique data set powers a model factory that constantly improves user experience and increases profitability - attracting more users, further improving the models and profitability. A Tencent executive told us last fall: “We are the only company that has customer data across social media, payments, gaming, messaging, media, and music, and we have this information on (several hundred) million people. Tencent, the Chinese social-media giant and maker of WeChat, is one of our favorite examples of this new business model. In a data-driven business, the data helps the business in a model-driven business, the models are the business. A model-driven business creates a system built around continuously improving models that define the business. A data-driven business collects and analyzes data to help humans make better business decisions. Granade in the Wall Street Journal explains why this model-driven business model is so powerful:Ī model-driven business is something beyond a data-driven business. The company has access to enormously valuable data across all kids of platforms, and this gives Tencent a tremendously valuable source of strategic advantage.Īn excellent article from Steven A. Since the start of 2017 a total of 12 of Tencent's portfolio companies have gone public, and Tencent's aggregate stake in these 12 IPOs was worth more than $20B at the time of exit.Įven more important, the whole is worth more than the sum of the parts when it comes to Tencent. The company owns investments in Tesla ( TSLA), Snap ( SNAP), Spotify ( SPOT), and Uber, to name a few high-profile examples of well-known companies in the U.S. The more users a platform has, the more value it provides to such users, which creates a virtuous cycle of growth and increased competitive strength for Tencent in its multiple businesses.Īccess to gargantuan amounts of financial resources allows Tencent to make all kinds of investments across the world. In businesses such as social networks and digital payments, users attract each other to the leading platforms. The company benefits from the network effect, meaning that the value of the platform increases as it gains size over time. All those industries together represent a massive addressable market worth more than $1 trillion in the long term. Tencent is a market leader in industries such as online games, social media, digital payments, online media, e-commerce, and cloud computing, among several others. Online games are declining as a share of total revenue, from 48% in the second quarter of 2016 to 42% in the second quarter of 2017, and to 34% of revenue in the second quarter of 2018. Besides, the company is increasingly diversifying its revenue base over the past several years. These smaller businesses currently have thinner margins than online games, but profitability is set to expand as these younger platforms gain size and scale over time.Įven if the approval process for new online games in the coming months remains uncertain, Tencent has a pipeline of 15 games already approved for launch. The company also is growing at full speed in areas such as digital payments, cloud computing, and online video. Tencent has enormous room to increasingly monetize WeChat going forward, and this opportunity will probably be a remarkably powerful growth engine in the years ahead. The company is only showing users two ads per day in its WeChat Moments feed. This is in spite of the fact that Tencent is barely starting to monetize WeChat. Total company revenue increased by a vigorous 30% year over year, with online advertising growing 39% on the back of an explosive increase of 55% in social media advertising. However, this was only due to weakness in the online games segment, since Chinese regulatory authorities have suspended the approval of new online games because of an ongoing restructure of the administrations governing this space. Tencent delivered lower-than-expected revenue and a decline in net profit during the second quarter of 2018.

The big picture in Tencent stock remains intact from a long-term perspective, and current valuation levels are clearly attractive. However, recent weakness in financial performance is mostly temporary as opposed to permanent. Tencent ( OTCPK:TCEHY) stock is under heavy selling pressure, falling by more than 25% from its highs of the year due to macroeconomic uncertainty in China and lower than expected earnings from the company last quarter.

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