China-listed gaming and internet conglomerate Tencent publishes its annual results in a week’s time, on 24th but it is already clear the performance will be phenomenal.
If so it might see Tencent pass the $1 trillion market capitalisation, as expected by investment bank Morgan Stanley in its report last week.
Robin Zhu, an analyst at Sanford C Bernstein asset managers, estimated Tencent’s listed and unlisted investments were worth some $259bn in total as of March 2, according to Wall Street Journal.
News provider Information added: “Previously unreported internal data reviewed by The Information shows the Chinese internet giant’s unrealised gains last year from its minority stakes in about 100 publicly listed companies amounted to $120bn, roughly six times its estimated profit for 2020.”
Tencent’s previous earnings report, released in November for its third quarter, said its investments in listed companies, excluding its subsidiaries, were worth the equivalent of $138bn as of end-September 2020, the WSJ added. “That was nearly 10 times the figure it reported just four years earlier.”
Tencent’s investments totalled more than $12bn last year, according to news provider Nikkei Asia, and it has more than 800 portfolio companies in total (up from about 700 in its 2019 results).
This was more than peer Alibaba, which fell below $10bn invested in corporate venturing deals last year, for the first time since 2013, Nikkei added.
Excluding Ant, which would have been worth more than $100bn to Alibaba if its flotation had completed as planned in November, the rest of Alibaba’s investment portfolio was worth about $26bn as of March 2, according to Bernstein estimates quoted by the WSJ.
By contrast, Morgan Stanley valued Tencent’s own fintech business at $157bn even if its position is eventually affected by China’s use of a digital currency for electronic payments (DCEP).
Nikkei said the after-effects of Ant’s delayed initial public offering and regulatory attention on the group had been to see a slowing of deal activity: “While Alibaba has made less than 10 investment deals since the beginning of this year, Tencent has done more than 70.”
The same regulatory pressures may also affect Tencent in future. As the WSJ noted:
“The bigger concern for Tencent is whether the regulatory crackdown will go beyond fintech. China’s antitrust watchdog fined Tencent on Friday for failing to seek prior approval for its 2018 investment in an online-education app. Other tech companies such as Baidu, Bytedance and Didi Chuxing were also fined.”
But not just yet, it seems.
After its results statement, Tencent is expected to fund yet another large investment. Tencent through its Image Frame Investment subsidiary is expected to buy almost 53.4 million shares (3.6%) in Japan-listed online retailer Rakuten for Y1,145 each (about $600m in total). The payment date will be between 29 March and 30 April.
Martin Lau, executive director and president of Tencent, said: “Rakuten has built a vibrant ecosystem through its membership and loyalty program, extending its unrivalled strength from ecommerce to fintech [financial technology] and digital content.
“Tencent shares Rakuten’s aspiration of creating value through innovation and empowerment for users and partners. We are excited to invest in Rakuten, supporting its evolution into a global innovation leader.
“We look forward to pursuing strategic cooperation across activities including digital entertainment and e-commerce, creating value for users and building the internet ecosystem together.”
What is also interesting is local post service Japan Post and US-listed retailer Walmart are expected to buy 8.3% and 0.9% stakes, respectively, in Rakuten as part of the same share offering.
With Tencent last September investing about $62.8m in Walmart-controlled, India-based retailer Flipkart, according to filings sourced from business signals platform paper.vc, then there are interesting signs the Tencent ecosystem in China is globalising through minority stakes.
Throw in Rakuten and Japan Post for the world’s third-largest economy and Tencent has most of the world’s retail markets under analysis from the inside and hence a strong competitive position again Amazon and Alibaba.
It is a strategic dance that will affect how most people will live if the Chinese authorities let it and one shareholders are supportive for now, at least.
