SINGAPORE: Tencent is poised to be part of the trillion greenback membership.
After a whopping 11 per cent rally in inventory worth and an equally whopping tumble of about 5 per cent final week, the query is whether or not we’re seeing the worldwide tech bubble increasing to Asia.
Certainly, the Hong Kong market typically was in a optimistic temper on the day of the 115 per cent bounce.
And over this previous 12 months, Tencent’s inventory worth has risen by 85 per cent in worth.
Nevertheless, a trillion dollars is a lot of cash.
Amazon, Apple and Microsoft are all effectively into their first trillion-dollar market capitalisation and Apple is already over the US$2 trillion greenback mark.
Is Tencent going to be part of the membership? There is cause to imagine that Tencent nonetheless has a vital progress runway left, and has demonstrated resilience towards a backdrop of continued US-China tensions.
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But the query stays whether or not traders recognise this potential and reward its efficiency so far.
DIVERSIFIED REVENUE SOURCES
Tencent’s enterprise is extra diversified than most individuals assume. A big portion of its income nonetheless comes from its on-line gaming arm – roughly 30 per cent, however this is down from over 50 per cent simply 5 years in the past.
Today, round a quarter of Tencent’s income comes from FinTech and enterprise providers. Roughly one-fifth comes from social network-driven leisure like Tencent Video and WeChat Reader, and the final one-fifth comes from commercial.
Tencent is definitely extra diversified than other tech giants, resembling Facebook. This permits it to keep away from counting on one enterprise amid an financial slowdown or within the face of a (geopolitical) disaster.
Clearly, Tencent is good at wanting round. The firm is hyperaware of what is occurring outdoors of its personal group.
It has tentacles in dozens of sectors. The Tencent empire is ever increasing via its WeChat-enabled ecosystem.
Tencent is additionally definitely not a first mover, however understands the advantages of being a follower.
In 2020, Tencent noticed its main competitor, Alibaba, thriving, turbocharged by a COVID-19 crisis-accelerated e-commerce increase and livestreaming taking off massive time.
LIVESTREAMING AND E-COMMERCE TWO NEW GROWTH DRIVERS
As a multibillion greenback alternative the place principally Alibaba, via Taobao Live, is reaping the advantages, livestreaming is a progress alternative for Tencent – particularly as its closed-circle WeChat offers another to the prevalent Taobao Live and Tiktok fashions.
In August 2020, Tencent introduced plans to combine its video and e-commerce platforms, Tencent Video and group-buying platform Xiao E Pin Pin. This integration will enhance transactions and may lead to a rise in WeChat Pay income, from fee from retailers.
The October 2020 announcement to merge two Twitch-like livestreaming platforms in China, DouYu and Huya, was the subsequent step.
Huya, DouYu and Tencent’s live-streaming department Penguin esports collectively accounted for almost 86 per cent of the sport live-streaming market of China. Tencent is rumoured to be planning to enter the livestreaming market within the US, following its quiet beta-testing of trovo.dwell.
There is little doubt in regards to the progress potential in e-commerce. This has been a long-term weak point for Tencent which has struggled to enter the e-commerce discipline and tried for a few years with little success.
On the one hand, the 2 main platforms – Taobao and JD.com – have a giant majority market share. On the other hand, new disruptors, resembling Pinduoduo, Meituan and even not too long ago Bytedance, have popped up all over the place, intensifying competitors.
So, Tencent is taking a totally different strategy. One may name it the “Walmart approach”.
When Walmart was battling ecommerce in Asia, it acquired a web-based grocery platform, Yihaodian, that was later acquired by JD.com. Walmart did the identical in India, when it invested within the main platform Flipkart.
Similarly, Tencent has invested in JD.com and owns about 17 per cent of the profitable social commerce big Pinduoduo.
But that is not sufficient; Tencent introduced its personal purchasing characteristic inside the WeChat ecosystem, referred to as Minishop, which permits customers to promote merchandise supplied on other e-commerce websites like JD.com.
This is notably enticing for pulling away smaller retailers from the Taobao platform, who more and more really feel squeezed by Alibaba.
And there is large income to be made on this strategy: Last 12 months noticed a robust improve in gross sales on WeChat’s mini programmes.
Being a quiet follower, slightly the other of Alibaba, may end up to be a intelligent technique.
Similarly, Tencent’s Xiao E Pinpin, mainly modeled after Pinduoduo with parts borrowed from one other rival, luxurious purchasing platform Xiaohongshu, adopts a intelligent follower technique”.
Tencent was one of many tech firms in China summoned by Beijing to be warned for monopolistic behaviour.
In mild of the current anti-trust strikes of the Chinese authorities, Ant Group has gotten probably the most warmth.
WeChat has its personal set of troubles with a US ban, referred to as for by former President Donald Trump, in September 2020.
But that transfer was met with scepticism, even inside the US. In all, Tencent has managed to avoiding the true warmth coming from the anti-trust challenges and US-China commerce battle, of which the principle affect has been on Huawei. There are at the least three causes for this.
First, the character of Tencent’s companies is in leisure and social communication in closed, friend-based, communities.
This is totally different from nationwide telecom community operators (like Huawei) or large monetary providers suppliers (like Ant). Nor does the corporate depend on intensive machine studying pushed algorithms that seize client behaviour throughout all customers (like Tiktok does).
Second, though WeChat Pay is an vital arm in WeChat’s ecosystem, it is far much less vital as a income supply.
As Zhijun Gen, VP of Weixin group mentioned in 2019: Mobile cost is already a conventional business. WeChat Pay is not centered on funds. It makes use of digital instruments to assist business companions work collectively to enhance the patron expertise.
Third, WeChat’s strategy to internationalisation is fairly totally different from Ant. While Ant is aiming to increase its cost and transaction empire throughout the globe, WeChat sees extra worth in taking part in the function of a bridge between client and service provider.
As a communication and repair platform, WeChat stays away from the monetary providers sectors and regulators. It doesn’t provide micro-loans and delayed funds LIKE Ant does.
Having mentioned that, Tencent is a latecomer in contrast to Alibaba when it comes to the internationalisation of its merchandise however that hasn’t labored out too badly for the Chinese tech agency.
Perhaps this success might be attributed to one factor: Pony Ma, the founding father of Tencent, has been following the commerce battle intently.
As early as 2019 he was quoted as one of many first Chinese Big Tech leaders to espouse issues the commerce battle would flip into a tech battle.
Well, it has become a tech battle, and Tencent can not keep away from the hearth, nevertheless it is exhibiting resilience that may hold Ma hopeful.
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Mark Greeven is Professor of Innovation and Strategy at IMD Business School in Switzerland and Singapore.