What do you know about Tencent?

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China is the world’s most populous digital market and the protection afforded by state censorship through the so-called great firewall has meant no competition from Facebook, Google, Twitter and Netflix. This has helped Tencent-an Internet services giant- flourish since it launched nearly two decades ago in Shenzhen. But in the last year the shares have been supercharged – climbing from less than HK$200 (Ksh1,800) at the beginning of 2017 to HK$442 now – and the value of the company has soared.

There are three cornerstones of Tencent’s business – its messaging app WeChat; the biggest mobile gaming franchises in the world; and an ecosystem built around its 1 billion users that apes many of the services offered by the Silicon Valley firms that do not operate in China.

The company’s Netflix-style Tencent Video service – the biggest in China with exclusive content including NFL games and HBO series such as Game of Thrones – more than doubled in size in the last year, attracting more than 40 million paying subscribers.

“They have a relationship of mutual benefit with the Chinese state,” says Jamie McEwan, an analyst at Enders. “They have been allowed to grow and massively diversify their businesses without the level of scrutiny or competition you might see in western countries.”

Late last year, Tencent became the first Chinese firm to pass the $500bn stock market valuation mark, supplanting Facebook at the time as the world’s fifth-biggest firm. Tencent Music, which dwarfs efforts by Apple and Spotify in China, is expected to make a $10bn stock market listing this year.

Tencent also cranked up its domination of mobile gaming, handing over $8.6bn for the Finnish company Supercell, maker of two of the biggest games in the world, Clash of Clans and Clash Royale. It also owns the Los Angeles game-maker Riot, behind the huge League of Legends franchise, and has stakes in Gears of War maker Epic and Activision Blizzard, home to Call of Duty, World of Warcraft and Candy Crush Saga.

Tencent also owns the most profitable game in the world, Honour of Kings, which makes about $1bn a quarter and has 200 million monthly players. It has proved so addictive in games-mad China that the government warned Tencent in an article in the state-owned People’s Daily last year saying it was “poison” and a “drug” that harms kids.

Analysts estimate that Tencent digital services are used by more than two-thirds of the Chinese population. Chinese users collectively spend 1.7bn hours a day on the company’s apps. The WeChat eco-system is so broad it is almost like rolling most of the apps on a typical western user’s mobile phone into one.

“It is compared to What’s App or Facebook messenger but it is not really,” says Xiaofeng Wang, a Singapore-based analyst. “It has payment systems, smart city offerings such as the ability to schedule appointments at a bank, a doctor, pay traffic fines or make visa applications and e-commerce.”

The company also has a stake in Hollywood film distributor STX Entertainment, behind movies such as Bad Moms and All The Money in the World, while movie arm Tencent Pictures was a backer of blockbuster Kong: Skull Island. “The ultimate goal of all their investments is to enhance the services they have already developed, to support the eco-system,” says Ruomeng Wang, senior analyst.

The protected market conditions that have allowed Tencent to flourish, and the vast differences between Chinese and foreign internet users’ web habits, has seen the company struggle abroad. Seven years after launching WeChat it is yet to break into any other market, although it has earmarked Malaysia.

“WeChat and Tencent tried aggressively expanding into international markets like South America, Europe and even the US but it didn’t work out so well in mainstream western markets where existing players like What’s App are so established,” says Forrester’s Wang. “Their global expansion will in some places target Chinese travellers, with different strategies in emerging markets like South East Asia.”

The company is now worth $522 Billion and remains the world 5th largest company in terms of revenue ahead of Facebook at $519 billion.

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Melissa Daniels
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