Ignore Tencent's troubles - it's not game over yet

Anything Facebook can do, Tencent can do better. Unfortunately, this includes poor results wiping billions off the company’s value. Facebook’s poor growth figures last month made history as the largest one-day market cap loss ever in the US, wiping $119bn off its value. Tencent has just lost over $175bn in value since its stock peaked in January of this year, and now it has posted profits that fall very short of analyst predictions.

Why? The disappointing figures have primarily been due to a tricky regulatory environment impacting growth in its gaming arm, after the Chinese government froze new gaming licenses, restricting the opportunity to monetise gameplay and even took down Tencent’s biggest game Monster Hunter: World owing to ‘complaints.’

For all the headlines looking at how this is a huge misfire for Tencent, we need to keep a sense of perspective. This is a company that’s bigger than Facebook and has still posted a strong revenue of $10.6bn in the last three months (compare and contrast with Twitter’s $711m in the same period). In fact, Tencent’s struggles look both bureaucratic and temporary, with daily active users on its mobile gaming apps up by double digits year-on-year, and gaming - while a significant part of Tencent’s business - being just one string to its many bows.

Tencent is one of the largest companies in Asia, with 38 billion messages sent every single day through its WeChat platform, and its partnerships and investments in Snapchat, Spotify, Tesla, and Hollywood make it an increasingly global force.

Tencent’s future is likely to involve aggressive growth in the West through content, gaming, and further investments and acquisitions. It’ll be interesting to see how other Chinese tech giants, such as Alibaba, fare with their upcoming results. Especially given the growing trade war with Trump’s White House. One distinct advantage Tencent and other Chinese tech giants have is that the Chinese Government, despite some regulatory back-and-forth, is overall very protective of its own. Despite Facebook and Google’s best efforts, they are still unable to properly penetrate the Chinese market so BAT (Baidu, Alibaba and Tencent ) will not only reign on in China for the foreseeable future, but can also expand into the free markets of the West with comparative freedom.

Tencent’s real advantage is that - compared to the relatively 2D messaging functionality of WhatsApp in the West - WeChat is a multi-functional ecosystem, where consumers can engage with each other, download the latest games and buy their favourite things. If Tencent is able to expand that behaviour to Europe and the US, then it’s far from game over for Tencent, in fact, they’ll have reached a whole new level.

For now though, Tencent’s ambitions for WeChat aren’t as grand as you would expect. At the recent RISE Conference in Hong Kong, Grace Yin, Operations Director of WeChat Pay’s International Business explained that their secondary focus after the domestic China audience are Chinese tourists abroad. Given the functionality of their offering, focusing only on global merchants to accept WeChat Pay lacks ambition, as there remains a huge opportunity to push the offering to a broader consumer set. However it’s understandable given the size of the domestic market; it’s easy and perhaps wiser to take small and considered steps when pushing internationally.

Despite drops in Tencent’s share price, the WeChat ecosystem and their wider social platforms continue to grow in China. With monthly active users now close to 1.06 billion, a 9.9% year-on-year growth, their offering remains vital to brands. However, given the depth and variety of content, it remains more important than ever for brands to be relevant and add value to consumers. The recent rise in Mini-Programs, essentially sub-apps within WeChat, is an excellent way to engage consumers and have been a highlight for Tencent in recent months. Today, the Mini-Programs enable consumers to use services without downloading content from app stores. These mini-programs now alone reach 200 million daily active users allowing brands to create bespoke environments from which to tell their story and also drive action, including direct purchases.

The tech giants from Google to Amazon and Baidu to Alibaba are diverse entities, and where Tencent is suffering today in its gaming arm, the rest of the business maintains its value as a key partner for brands to tap into the Chinese audience at home and abroad.

Richard Brosgill, head of APAC at Forward3D

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