Mondegreen Posted September 20, 2018 Share Posted September 20, 2018 A successful game is a great business, the gaming industry as a whole not so much. Large up front investment for an uncertain result. All the revenue goes to a couple of games, low barriers to entry, often little subscription based revenue per user. Steam is a great business Link to comment Share on other sites More sharing options...
Jerry Capital Posted September 20, 2018 Share Posted September 20, 2018 All the top selling games are sequels. That's recurring revenue. FIFA has a user base $EA GTA has a user base $TTWO COD has a user base $ATVI Link to comment Share on other sites More sharing options...
bjakes00 Posted September 20, 2018 Share Posted September 20, 2018 Naspers has confirmed that it will be spinning off Multichoice in H1 2019. They say in the press release it will be a JSE Top 40 company, so $4bn+ market cap. My view is if this goes according to plan they may start spinning off a few more of their more mature SA businesses and unlocking value. Worth getting into Tencent via Naspers over the next few months - the market still does not ascribe any value to the myriad businesses that Naspers has. That obviously depends on your view of Tencent though. Info on the spin off: https://www.enhancingaccess.com/en-gb/home/ Also a Reddit list of the Tencent investment portfolio holdings: https://www.reddit.com/r/SecurityAnalysis/comments/9gsmkc/tencent_holdings_investment_portfolio_list_update/ Link to comment Share on other sites More sharing options...
Jerry Capital Posted September 20, 2018 Share Posted September 20, 2018 Same thesis as Yahoo and you would have been wiser to hold the main asset (Alibaba shares) than the discounted holding company. Ludic Fallacy Link to comment Share on other sites More sharing options...
bjakes00 Posted September 20, 2018 Share Posted September 20, 2018 Except that I would argue Naspers are much more adept allocators of capital than Yahoo were and also wouldn’t be so sure that your argument holds true for the Altaba chapter of the story. Link to comment Share on other sites More sharing options...
Mondegreen Posted September 20, 2018 Share Posted September 20, 2018 Hi Jerry Capital, Apologies, I agree with you. I was merely objecting to the statement "Gaming is one of the best businesses ever." Even for the franchise gaming companies, it's a much tougher business than Microsoft/Tobacco, gamers are much more fickle. Link to comment Share on other sites More sharing options...
peterHK Posted September 20, 2018 Share Posted September 20, 2018 I have much less familiarity with Naspers' capital allocation ability, but my sense is they're okay and the big thing they've done is really Tencent. TBH I'd rather keep it simple and just own Tencent, who are themselves allocating capital to all sorts of things. As for gaming. You have to remember Tencent has 800+mn MAU's that they can roll out games to. There is no other company on the planet with that type of ecosystem. WeChat may be 10 years old, but I don't think people are getting tired of it, rather, things revolve around it in China. All my Asian friends use it for just about everything, and I live in Vancouver Canada so not even China. In Richmond (the sort of Asian suburb of Vancouver) there are even alipay and wepay abilities at stores. I think westerners really underestimate how much more powerful Tencent is relative to what we have here in North America. The other thing is that all of Tencent's social media assets are undermonetized. The unit economics are worse (lower GM's than gaming), but the potential of that side of the business is very large. Numerically, think of it this way: you're buying it today at 30x LTM earnings, but those earnings are growing 25% a year. That means you're buying it at 19x 2 years out earnings, and 15x 3 year out earnings. Even if growth slows to 15% in 3 years, 15x earnings is fair if not cheap given the market size in China and their stage of development, so the risk of permanent capital loss I think is fairly low. The upside is if they trade say at 25x 3 year out earnings, those are very nice returns. Also recall that China is only 3% of the MSCI despite being 17% of world market cap, and their market is among the cheapest in the world, so there is also "flow related" upside on a macro level. You're also buying the yuan at a multi-year low. Link to comment Share on other sites More sharing options...
cameronfen Posted September 21, 2018 Share Posted September 21, 2018 The economics of gaming in Asia are different than the US. In the west a company like Activision, does end to end production. They come up with the concept (usually), design the game, and they market the game. In Asia the main thing tencent does is push the game to its 800 million MAU. Some other company comes up with the concept and designs the game and then pays tencent to market it making it very difficult for tencent to be replaced with another company (as who has 800 million MAU). Tencent takes little risk designing the game. A good illustration is tencent is responsible for marketing both pubg and fortnite despite the developers suing each other for copyright infringement. Tencent wins no matter which game makes more money only the developer takes the risk. That being said, tencent has a habit of buying ownership share in developers whose game it likes which is much more risky and less toll booth-y than just pushing it to its network. Link to comment Share on other sites More sharing options...
MrB Posted September 21, 2018 Share Posted September 21, 2018 I have much less familiarity with Naspers' capital allocation ability, but my sense is they're okay and the big thing they've done is really Tencent. TBH I'd rather keep it simple and just own Tencent, who are themselves allocating capital to all sorts of things. As for gaming. You have to remember Tencent has 800+mn MAU's that they can roll out games to. There is no other company on the planet with that type of ecosystem. WeChat may be 10 years old, but I don't think people are getting tired of it, rather, things revolve around it in China. All my Asian friends use it for just about everything, and I live in Vancouver Canada so not even China. In Richmond (the sort of Asian suburb of Vancouver) there are even alipay and wepay abilities at stores. I think westerners really underestimate how much more powerful Tencent is relative to what we have here in North America. The other thing is that all of Tencent's social media assets are undermonetized. The unit economics are worse (lower GM's than gaming), but the potential of that side of the business is very large. Numerically, think of it this way: you're buying it today at 30x LTM earnings, but those earnings are growing 25% a year. That means you're buying it at 19x 2 years out earnings, and 15x 3 year out earnings. Even if growth slows to 15% in 3 years, 15x earnings is fair if not cheap given the market size in China and their stage of development, so the risk of permanent capital loss I think is fairly low. The upside is if they trade say at 25x 3 year out earnings, those are very nice returns. Also recall that China is only 3% of the MSCI despite being 17% of world market cap, and their market is among the cheapest in the world, so there is also "flow related" upside on a macro level. You're also buying the yuan at a multi-year low. Interesting article in light of your comments on people underestimating the impact of Chinese companies on the rest of the world. https://www.cnbc.com/2018/09/20/eric-schmidt-ex-google-ceo-predicts-internet-split-china.html Link to comment Share on other sites More sharing options...
peterHK Posted September 21, 2018 Share Posted September 21, 2018 Interesting article in light of your comments on people underestimating the impact of Chinese companies on the rest of the world. https://www.cnbc.com/2018/09/20/eric-schmidt-ex-google-ceo-predicts-internet-split-china.html Interesting take; I could see that happening, but handicapping the odds are tough. I think western people underestimate the impact of Tencent/Baba in just China alone, let alone the rest of the world. Unless you've actually been to China (which I have, though it was in 2010, so a lot has changed), or spent significant time digging into news about Tencent or Alibaba, I don't think you can really appreciate it. The equity research published on the names really doesn't quite get at how integral they really are to every day life in China. I think a lot of PM's, or the older generation also don't quite understand how integral things like Instagram is, or Facebook was (at least when I was in high school), so they don't have a great frame of reference about how 1) social media is a valuable business and 2) Tencent's social media business and ecosystem is orders of magnitude more valuable than Facebook's. Link to comment Share on other sites More sharing options...
Liberty Posted October 15, 2018 Share Posted October 15, 2018 https://www.ft.com/content/9d7c1434-cc50-11e8-b276-b9069bde0956 Chinese video games companies expect Beijing’s freeze on approvals for new titles to last until next year, dealing a fresh blow to internet giant Tencent and other publishers catering to the world’s largest gaming market. Regulators stopped approving commercial licences for online games in late March as a result of a shake-up placing media regulation under direct Communist party control, meaning companies have been deprived of revenue from new game launches. A resumption of approvals would be a major boost to Tencent, which has lost $200bn in market capitalisation this year, largely as a result of stagnant growth in games sales, which make up most of its revenues. Link to comment Share on other sites More sharing options...
khturbo Posted October 22, 2018 Share Posted October 22, 2018 I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher. So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day. Link to comment Share on other sites More sharing options...
cameronfen Posted October 23, 2018 Share Posted October 23, 2018 I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher. So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day. It's accretive to stock price in the short term, but if you think the price of tencent is going to grow at an IRR or 20% a year for the next 10 years (not saying they will), why would you sell the stock now and buy back your shares when in 10 years you have a lot more money to buyback shares (if the discount doesn't close). Buying back shares is a short term boost to the stock. Not saying it is bad, but you should weigh the opportunity of the buyback in terms of IRR to the IRR of the capital investment of the firm (in the case the IRR of owning financial capital (stocks)). I think there still is decent evidence that the IRR of tencent over the long term is still pretty good. Granted I bet there is some empire building mentality (although they are spinning off their African Pay TV), and they are actually selling tencent stock slowly and redeploying capital. In fact even selling 2% of the outstanding shares (out of a total of like 33% total stake) which they did recently, required a transaction outside the public market, suggesting that they have liquidity issues selling that big a stake. That also may be a big reason they aren't selling as they are locked in liquidity-wise. That being said with the shares they have sold, it doesn't look like they are buying back shares which is a negative, but they are looking to deploy it in other VC investments, which I think is not as attractive as buybacks, but they have generated like 25-35% IRR on VC investments not including tencent, so it's not like they don't know what they are doing. Link to comment Share on other sites More sharing options...
Jurgis Posted October 23, 2018 Share Posted October 23, 2018 I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher. So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day. It's accretive to stock price in the short term, but if you think the price of tencent is going to grow at an IRR or 20% a year for the next 10 years (not saying they will), why would you sell the stock now and buy back your shares when in 10 years you have a lot more money to buyback shares (if the discount doesn't close). Buying back shares is a short term boost to the stock. Not saying it is bad, but you should weigh the opportunity of the buyback in terms of IRR to the IRR of the capital investment of the firm (in the case the IRR of owning financial capital (stocks)). I think there still is decent evidence that the IRR of tencent over the long term is still pretty good. Granted I bet there is some empire building mentality (although they are spinning off their African Pay TV), and they are actually selling tencent stock slowly and redeploying capital. In fact even selling 2% of the outstanding shares (out of a total of like 33% total stake) which they did recently, required a transaction outside the public market, suggesting that they have liquidity issues selling that big a stake. That also may be a big reason they aren't selling as they are locked in liquidity-wise. That being said with the shares they have sold, it doesn't look like they are buying back shares which is a negative, but they are looking to deploy it in other VC investments, which I think is not as attractive as buybacks, but they have generated like 25-35% IRR on VC investments not including tencent, so it's not like they don't know what they are doing. Good answer. Also they have been told to sell Tencent for the last 5-10 years. So far their decision not to sell has been the right one. Of course, this may have built false bias, though this year's small sale seems to show that they are open to sell (some) at the right price and situation. Link to comment Share on other sites More sharing options...
khturbo Posted October 23, 2018 Share Posted October 23, 2018 Right, I understand that and that's a fair point. What I mean more is that with the current discount, if you sell some Tencent and use the money for a share buyback, you have more Tencent per share plus all of the other stuff. Glancing through the annual report it looks like they own 31.2% of Tencent. So roughly $106bb of value compared to a market price of $82bb for Naspers. I'm guessing I might be off by a bit, but the point still stands. Why not just sell, say, $1bb of Tencent and use the money to buy back stock? Not only would you own more of the other stuff, but you'd own more Tencent per share as well. It's just puzzling to me why they don't do this. I get maybe there's a liquidity problem but they could just sell the shares off over time which would solve that. I also thought that there wouldn't be tax leakage, so that wouldn't be an issue either. I ask because I would like to own Naspers given the discount but I own TCEHY instead because I just can't get behind a management team that isn't doing what looks like a win-win. So if there's a reason they don't then I would love to know about it. Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 5, 2018 Share Posted November 5, 2018 Tencent to expand underage ID check to all games https://www.reuters.com/article/us-tencent-games-id/tencent-to-expand-underage-id-check-to-all-games-idUSKCN1NA18L Link to comment Share on other sites More sharing options...
Gregmal Posted December 8, 2018 Share Posted December 8, 2018 Tencent to expand underage ID check to all games https://www.reuters.com/article/us-tencent-games-id/tencent-to-expand-underage-id-check-to-all-games-idUSKCN1NA18L https://nypost.com/2018/12/07/chinese-company-offers-5-2b-for-louisville-slugger-owner/ Hardly a needle mover, but I love the breadth of their investments. They are literally in everything. Link to comment Share on other sites More sharing options...
WayWardCloud Posted December 8, 2018 Share Posted December 8, 2018 I love Tencent's core businesses but their use of cash flows to fund countless random unrelated investments is what's keeping me away from the company. Why do you think being in "literally everything" is good for a company? Link to comment Share on other sites More sharing options...
Gregmal Posted December 8, 2018 Share Posted December 8, 2018 I love Tencent's core businesses but their use of cash flows to fund countless random unrelated investments is what's keeping me away from the company. Why do you think being in "literally everything" is good for a company? Perhaps it's just my preference but I think given the dominant position of their social media platforms, there is a huge runway for them to plug in small investments and create value through their ecosystem. People pay a premium for FB adds because of their reach. Tencent can do the same, while integrating their own investment portfolio products and services. Maybe an ultra bullish dream but picture Facebook's platform integrated with an Amazon like product range, in house. Link to comment Share on other sites More sharing options...
Jurgis Posted January 24, 2019 Share Posted January 24, 2019 Based on the recent game approvals in China, does anyone think that Tencent is being punished more than other Chinese gaming companies? Is this political? Is this power games (pun intended) in Chinese ministries where different companies try to push their approvals first and Tencent has not done good moves? I don't really know. I'm asking. Maybe someone with boots on ground or local info can chime in. Link to comment Share on other sites More sharing options...
merkhet Posted January 24, 2019 Share Posted January 24, 2019 I don't think so. Tencent just got their first approvals today. https://www.scmp.com/tech/apps-social/article/2183517/tencent-netease-gets-new-video-game-licences-after-nine-month Link to comment Share on other sites More sharing options...
Jurgis Posted January 24, 2019 Share Posted January 24, 2019 I don't think so. Tencent just got their first approvals today. https://www.scmp.com/tech/apps-social/article/2183517/tencent-netease-gets-new-video-game-licences-after-nine-month Yes, I know that. That's actually exactly why I asked. They got approvals for two crappy educational games. Other companies got approvals last month. And for bigger games too. Edit: Maybe it's based on the submission order as the article says. Not sure if they know that for certain. Link to comment Share on other sites More sharing options...
Spekulatius Posted January 24, 2019 Share Posted January 24, 2019 Based on the recent game approvals in China, does anyone think that Tencent is being punished more than other Chinese gaming companies? Is this political? Is this power games (pun intended) in Chinese ministries where different companies try to push their approvals first and Tencent has not done good moves? I don't really know. I'm asking. Maybe someone with boots on ground or local info can chime in. Seems like it. The biggest games of 2018 (at least for mobile ) PUPG and Fortnite are still not available in China. The revenues that these games could bring in are lost forever and a belated launch after a year of Delay brings the risk another game steals their thunder. I am not sure this is politically motivated or the regulators in China just wanted to get ahead of event, before the biggest time drain of modern time are launched in China and start to impact their 5 year plans . LOL. Link to comment Share on other sites More sharing options...
HJ Posted January 25, 2019 Share Posted January 25, 2019 Pretty sure Tencent is in the good grace of Chinese government. The education ministry also recently banned Kindergarten from raising money in the capital markets. Wouldn't be surprised if it's all driven by the same bureaucrats. Strange one size fits all decisions come out of Chinese governments sometimes. That said, as the parent of a 12 year old boy, I do wish there is some effort from my school to deal with the side effect of gaming addictions. It's not healthy. Link to comment Share on other sites More sharing options...
Liberty Posted March 21, 2019 Share Posted March 21, 2019 Q4: http://www.tencent.com/attachments/ResultsPresentation4Q18.pdf http://www.tencent.com/en-us/articles/15000761553167321.pdf Link to comment Share on other sites More sharing options...
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