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Business Management

Tencent hits $200bn market cap. Now what?

It’s been a rollercoaster week so far for Tencent. After being valued at the start of the year at $120bn, it smashed through the $200bn figure for the first time on Monday, making it more valuable than Amazon, IBM or Oracle. Then came the slump. It proceeded to lose around $11bn as filings in Hong Kong revealed that founder Pony Ma had offloaded a combined 20 million shares at the end of last week. So should investors and technology users be worried?

Lest we forget, the stock market is a nervy creature.

The truth is that Tencent is Asia’s biggest messaging company. Its instant messaging service QQ may be nearing saturation in China but that’s only because virtually every internet user in the Middle Kingdom has an account. At the last count, there were in excess of 830 million monthly active users – across fixed and mobile. Its mobile messaging WeChat (Weixin) platform, meanwhile, is growing into a global phenomenon, hitting 500 million MAUs at the end of Q4 2014, according to Tencent. This compares to about 700 million for Facebook-owned WhatsApp.

The Shenzhen-headquartered firm is often seen as the arch-rival of US-listed Alibaba. But where the latter is compared to eBay and Amazon for its origins in e-commerce, Tencent plays more in the social/messaging/gaming space thanks to the aforementioned brands, as well as TenPay (payments) Tencent Weibo (micro-blogging), Traveler (web browser), Soso (search) and Weiyun (cloud storage).

Monetise that!

The key for investors will be whether Tencent can push on and make money on the back of these services.

It is arguably doing a better job of this with its messaging platforms than WhatsApp at the moment, through its QQ wallet service launched in July 2014 and new capabilities in WeChat enabling brands to allow customers to pay for anything inside the app. Revenue from targeted advertising has also risen by 75% in Q4, thanks to tie-ups with HBO and the NBA, according to the AFR.

Also added to the platform since have been services for wealth management, hailing cabs and buying movie tickets. Chinese business publisher Caixin claimed last December that Tencent’s “Smart Life” strategy will see it expand into even more areas, providing ways to book hotels, buy travel tickets, and even pay tuition fees in the future.

Analysts tell me the firm is also set for a move into the wearables and Internet of Things space, having already integrated gaming capabilities into the Razer Nabu social smartband.

Global concerns

The only potential worry for Tencenters is if the firm doesn’t make good on this revenue earning potential – both inside and outside of its huge domestic market. Despite a concerted effort to promote WeChat outside the Great Firewall – most notably by hurling millions at a Lionel Messi-themed marketing campaign – most commentators are lukewarm about its prospects, especially in regions where WhatsApp is already well established. It’s pretty telling that Tencent has yet to break out the international MAU figures for the service.

Yet an effective international strategy is what shareholders will continue to demand of Ma, and maybe even a US-listing. 

“A bold guess? WeChat will split from the company and be on its own, to better allocate resources and compete with Line/Facebook,” Forrester analyst Bryan Wang told me recently. “Maybe by the end of 2015 or 2016.”

We shall see.

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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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