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Tencent is now the most valuable social media company as share price rallies

With a market cap of $667.6 billion, Tencent emerged as the biggest social media company ahead of Facebook on Wednesday with upsides still expected ahead of its Q2 earnings release.

Tencent Source: Bloomberg

Investors bullish on Tencent with gaming revenue

Tencent shares had seen an impressive surge since the second quarter (Q2) of 2020 riding on the latest Covid-19 influence on consumer behaviours that looks to boost revenue performance. The online services company had risen 44.2% on a year-to-date (YTD) basis and clocked 31.1% jump for prices in Q2 alone. This had marked the biggest quarterly jump for prices seen since Q3 2013. Ahead of Q2 earnings results, Tencent had seen 8.6% rise as of Wednesday, 29 July, sustaining the bullish momentum for the prices. Likewise, with the rise in market capitalisation, Tencent had surpassed that of Facebook, part of the US Fang stocks, which totalled $656.2 billion in market capitalisation as of Tuesday’s close.

Tencent draws the majority off its revenue out of mainland China, half of which is stemming from the value-added services segment. This consists primarily of online and mobile games across both internet and mobile platforms. Honour of Kings, Brawl Stars are just some of the popular titles in Tencent’s library of online game offerings, the latter only accounting for a small part of Q2 performance but had nevertheless been touted as a high revenue grossing , seeing the surge in popularity at initial offering on China’s Apple store.

According to CPC-CNG estimates, as reported by Bloomberg, the Chinese online game industry sales had grown by 9% in H1 of 2019, which marks an acceleration from 5% in 2018. This comes across with little surprise as the stay-home trend continues amid localised Covid-19 outbreaks. The increase in engagement across a wider pool of consumers through the pandemic thus far is also expected to have built a stronger client base.

Meanwhile, Tencent as a social media company also has the widely popular WeChat app in its arsenal, among others, that represent significant monetisation opportunities which is why we continue to see further upsides expected from the market. Current Refinitiv consensus target price sits at $552.36 (HKD), above the last price seen on Wednesday at $541.50, although this number itself had been gradually shifted up as the Covid-19 pandemic lingers.

Revenue (2019) Geography Revenue (2019)
Value-added services 53% Mainland China 96%
FinTech and business services 27% Others 4%
Online advertising 18%
Others 2%

Source: Refinitiv

Tencent share price: technical analysis

Tencent shares had seen a strong rally since March 2020, breaking above the $515.00 resistance level into the start of July. That said, the prices appeared to have entered a short-term consolidation zone of between $515.00 and around $560.00, gathering strength here. Watch for a firm breakout above the latter to open further upsides in the current trend. A break below $515.00 may, however, mark a definite pause in momentum here, although the prices could stall ahead of the Q2 earnings release, currently expected on 12 August.

Tencent shares chart Source: IG charts
Tencent shares chart Source: IG charts

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