Can Tencent Holdings Rebound from its Fall? |
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EXCERPTS |
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Tencent’s big decline started in late March 2018 following its fourth quarter 2017 financial report. The company’s commitment to boosting investments in high-growth markets like digital payments, streaming video, cloud services, smart retail, and artificial intelligence (AI) technologies convinced investors that its margins would remain under pressure in the near term.
Tencent lost more than US$51 billion in market value in two days (March 22 & 23, 2018), having fallen 5% on March 22, its steepest in over six weeks. That decline came after Tencent reported a better-than-expected profit in the fourth quarter 2017 but missed analysts’ revenue estimate and said aggressive investment might squeeze profit margins.
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| GROWING CONCERNS FOR TENCENT |
| Despite a 74% YoY jump in net profit for 2017, the value of Tencent’s shares dropped by around 20% in May 2018 from its record high in January 2018 after the release of the company’s first quarter earnings, as the market was expecting a moderate fall in margins. The gross margin and net income margin of the company came down from 67.83% and 40.99% in financial year 2010 to 49.18% and 30.08% respectively in 2017 and the gross margin in the first quarter of 2018 was 50.38% due to the faster growth of lower-margin businesses.. |
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| RESTRUCTURING TENCENT |
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On September 30, 2018, Tencent announced its first restructuring in six years. The restructure saw a strategy shift from gaming to AI, cloud services, big data, and security targeting corporate clients...
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| EXHIBITS |
Exhibit I: Balance Sheet of Tencent (From 2010 to 2017)
Exhibit II : The BrandZ Top Ten Most Valuable Chinese Brands 2018
Exhibit III : Tencent’s Membership in US$500 billion Market Cap Club (As of November 21,
Exhibit IV : Tencent’s Income-Adjusted Statement (From FY2010 to FY2017 and Estimation for FY18 & FY19)
Exhibit V : Financial Highlights of Tencent - Yearly (2010-2017) and Quarterly (Up to Q3 2018)
Exhibit VI : World’s Top 5 Video Game Companies by 2017 Annual Gaming Revenue
Exhibit VII : Tencent’s Profitability Ratios - Yearly (2010-2017) and Quarterly (Upto Q3 2018)
Exhibit VIII : Tencent Online Gaming Revenue Revisions vs. Share Price
Exhibit IX : Tencent’s Stock Valuation Assumptions
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