Chinese Internet giant Tencent’s stock price has increased as much as 22.1% this month, rising sharply to reach a record-breaking high on Tuesday. With a day high of HKD 498.6 (USD 64.33), as of Tuesday 5 pm, this would bring its market capitalisation to HKD 4.76 trillion (USD 614.17 billion).
Bloomberg reports that analysts’ average stock target for Tencent has increased by 13% in the last six weeks. Tencent stocks have made a remarkable recovery since October 2018 when China’s tightening regulations over online content and a slowdown in the economy led to a disappointing quarter, causing the stock price to drop to HKD 260 (USD 33.55).
In its most recent financial report released on 13 May, Tencent reported Q1 revenues of RMB 108,065 million (USD15,252 million), a 26% year-on-year increase. This growth can be largely attributed to increased revenues from online gaming (31% YoY) and advertising (32% YoY), which no doubt have been boosted by increased online activity due to the COVID-19 lockdown. The firm is also investing heavily in cloud technology where they “expect to see accelerated cloud services and enterprise software adoption from offline industries and public sectors over the longer term.”
In addition, Tencent has adapted its offering to better accommodate pandemic-specific needs, providing eLearning tools, remote work products and cloud infrastructure, and eVouchers to increase consumer retail demand.
Looking forward, Tencent anticipates a shift in user behaviour – and revenue streams – as China begins to reopen its economy, including a decrease in commercial advertising spending and in-game consumption activities. However, fears of a second COVID-19 wave in China, which began earlier this month after a cluster of locally-transmitted cases were revealed, have seen schools shut and a partial lockdown reinstated in Beijing.
China has recently cracked down on online content, suspending three Tencent-backed apps, Bilibili Inc., Huya Inc., and DouYu, due to problematic content, according to a Bloomberg report earlier today. Tencent has come under fire for its content before, with its news app Tiantian Kuaibao having been singled out by the Chinese government for circulating “vulgar and low-brow information” in January last year. It remains to be seen whether China’s hardline approach to Internet censorship, video games, and social media will affect Tencent’s future growth.