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TCEHY - Tencent


saltybit

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Liberty, what are your thoughts on the latest results? Have you come across any good content/commentary?

 

I haven't had time to read the transcript yet. Ben Thompson wrote about the results in his update today. Seems to be temporary issues with the games and a transition in how they monetize the payments. They also keep growing the non-game stuff, so over time the lumpiness of the games should go down.

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  • 2 weeks later...

 

This reminds me of the advertising ban on cigarettes.  It essentially wipes out competition from small players.  Of course I don't live in China so I have no idea what enforcement will be like.

 

When you look at the underlying root cause that the Chinese want to address (gaming addiction, especially with kids) I think we can guess that other measures are coming. The current hang up in game approvals is probably an aspect of the same issue.

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This reminds me of the advertising ban on cigarettes.  It essentially wipes out competition from small players.  Of course I don't live in China so I have no idea what enforcement will be like.

 

When you look at the underlying root cause that the Chinese want to address (gaming addiction, especially with kids) I think we can guess that other measures are coming. The current hang up in game approvals is probably an aspect of the same issue.

 

Does this hurt Tencent or help them by making their existing games more valuable? i.e less competition from new games means people play existing games more? Will China start limiting peoples internet access (time wise)?

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How WeChat became China’s everyday mobile app

 

Tencent has frequently added innovations to WeChat, designed to drive growth and loyalty, the latest being mini programs

 

https://www.scmp.com/tech/article/2159831/how-wechat-became-chinas-everyday-mobile-app#comments

 

Pretty sure the mini-programs have been around forever. You've been able to hail a rideshare car, pay bills, buy train tickets etc for a long time

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  • 2 weeks later...

This is starting to look cheap here.

 

30x earnings, but those earnings are growing 30%+ a year and you're buying one of the two companies that control the top of the tech funnel in China and arguably have the option value of shaping that industry for years to come (ie you partner with BABA/Tencent, or they kill you). WeChat is underearning, high ROIC business.

 

Additionally, unlike BABA, 90% of  their activity goes through the listco, and their CEO doesn't steal from western investors, so when you buy the ADR/VIE structure it's significantly better than BABA's version. They also have a good track record of taking things public rather than just holding them at 2x their value on the balance sheet like BABA does.

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The Naspers Tencent discount has fallen considerably since start of the year. Still a discount though, and the quality of naspers other businesses is growing. Naspers still talking about spinning off smaller units which is a positive. Claiming that their size relative to the JSE forcing domestic investors to sell.

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Sure, Tencent is starting to look cheap, but maybe still more than 50% of profits come from gaming.  I realize that it has a dominant position in gaming but still feel a bit chicken to buy this business at high multiple.  WeChat is fantastic but it is almost 10 years (people start to feel tired of it), and tech cycle is typically 10 years.  Any thoughts?

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