Shares of the gaming and social media leader are on track to outperform the Hang Seng Tech Index by the most since the gauge was introduced in mid-2020, gaining 5.5% this quarter. — Bloomberg
SHANGHAI: Tencent Holdings Ltd’s successful foray into short videos and a softening regulatory backdrop have fuelled a US$160bil (RM716.3bil) rally since October, the next leg of which will hinge on a crucial earnings release this week.
Shares of the gaming and social media leader are on track to outperform the Hang Seng Tech Index by the most since the gauge was introduced in mid-2020, gaining 5.5% this quarter even as Alibaba Group Holding Ltd and JD.com Inc remain in the red.
Much of Tencent’s rally was driven by anticipation of future sales streams and a belief that Beijing will keep its promises of supporting the private sector.
Its revenue likely eked out a gain of 0.2% in the final three months of 2022 after two quarters of contractions, according to analyst estimates ahead of today’s report. That’s expected to rebound to 6.7% growth in the March quarter.
“The next leg of gains I think will come from evidencing the acceleration of revenue, and that’s coming hand in hand with margin expansion,” said Adam Montanaro, investment director of global emerging markets equities at abrdn.
“A key area to watch will be the contribution from video accounts, which could help surprise on the upside.”
Analysts have raised Tencent’s price target by 17% since the start of 2023, citing a resumption of new game approvals, a recovery in consumption, and the growing popularity of its TikTok-style video feed.
A key bright spot has been WeChat’s fledgling short video feed, with the number of views tripling in 2022. Executives forecast one billion yuan (US$145mil or RM649.2mil) of ad sales through the feature in the fourth quarter.
Investors also expect Tencent to be a prime beneficiary of China’s post-Covid recovery, which will free up more corporations and consumers to spend on entertainment and advertising, while blockbusters like Valorant and Pokemon Unite are in the pipeline after Tencent secured its first batch of major game approvals in December. — Bloomberg
