Reports Q2 2019 results on Wednesday, August 14, before the open
Income expectation: $ 13.51 billion
EPS expectation: $ 0.32
Tencent Holdings (OTC :), China & Facebook (NASDAQ :), experienced a world of pain in 2018 – and the agony does not seem to end soon.
Last year, the lucrative gaming company of the Shenzhen-based Internet service company was hit by controls from the Chinese government, the macro environment in which it operates deteriorated and companies significantly slowed down spending, which damaged advertising activities. Unfortunately, many macro factors that would support the company's recovery are still absent
The US and China remain embroiled in a trade war that impedes growth in China and forces global companies to cancel or limit spending plans.
For the previous profit season, Tencent was the slowest pace of sales growth since it became public in 2004. Nevertheless, even with this bleak macro background, there is a bright spot that can prove that bears are wrong. That is a revival in the gaming business of the company, which generates more than 40% of the total turnover.
Tencent Weekly 2016-2019
The company's shares, which closed at $ 42.77 yesterday, were hit hard last year after a nine-month freeze on new game approvals in China – a move that stifled this important source of income. But this year, video games are expected to support Tencent's earnings again when the government started approving new games.
The mobile title "Game for Peace" is a big hit in China after the launch in May. The game, also known as & # 39; Peacekeeper Elite & # 39 ;, is an updated version of & # 39; PlayerUnknown & # 39; s Battlegrounds & # 39 ;. To go through the approval process, the company has made many changes, in particular reducing the violence in & # 39; Game for Peace & # 39; and adding patriotic images.
In the first 60 days, & # 39; Game for Peace & # 39; $ 241 million on Apple (NASDAQ 🙂 iOS devices in China, according to research firm Sensor Tower.
Gaming revival means that Tencent will also earn more money with its WeChat messaging service, which it sells in-game items and ads to over a billion potential customers. The company also invests in video and news to win back users from starters such as Bytedance Ltd.
In addition to the gaming division, analysts will also make efforts to diversify the revenue base by generating more revenue through the WeChat Pay service, cloud computing and asset management. The unit in which these activities are included saw an increase of 44% in the March quarter, making it one of the fastest growing divisions.
At the moment, Tencent shares do not seem to be the best bet this year. The share has only increased by 9% and is underperforming other tech giants and the wider market.
Yet we see Tencent as a solid stock with a lot of potential. It is a good way to get acquainted with the second largest economy in the world. And despite the headwind of the trade dispute between the US and China, the long-term prospects are bright.
Tencent's game pipeline is strong and well on track to broaden its revenue base. The company has a business model that is much more sustainable than many of its western counterparts.