On October 12, Tencent’s share price fell below HK$250, hitting a new low since November 2018. It fell more than 60% from its historical high at the beginning of 2021 and now only has a market value of only HK$2.43 trillion. Chinese media outlet WAVE believes that the reasons behind the decline in Tencent‘s share price include liquidity problems in Hong Kong stocks, regulatory concerns in the Internet field, reductions of holdings by major shareholders, as well as the company’s own weak growth.
It is rare for Tencent to see a sharp drop of more than 30% since its listing. Before this round, it had experienced sharp stock price drop twice both before and after the 2008 financial crisis. After the financial crisis, Tencent‘s share price exceeded HK$176.5 in January 2010, and its market value jumped to HK$250 billion, surpassing Yahoo and becoming the third largest Internet company in the world after Google and Amazon.
At that time, Tencent relied on the advantage of user scale to expand rapidly. In July 2020, unfair competition between Tencent and Qihoo 360 began. The pressure of public opinion, coupled with the short winter of the game business, and the first decline in QQ users in 2011, caused Tencent‘s stock price to drop sharply between 2010 and 2011.
After the crisis, Tencent decided to adopt an opening and sharing strategy after which its social superapp WeChat was officially born. Tencent‘s stock price rose more than 20 times from the end of 2011 to its peak in 2021. During this period, Tencent‘s share price only experienced a relatively large drop in 2018. The core reasons for that decline included the peak growth of Internet users in China and the suspension of game approvals. Today’s decline, however, is due to more unfavorable factors.
In the first half of this year, Tencent’s revenue was 269.505 billion yuan ($37 billion), down 1% year-on-year, while its net profit was 42.032 billion yuan, down 53% year-on-year. Among them, the financial technology and enterprise service business, which mainly support Tencent‘s growth, achieved a revenue of 42.2 billion yuan in the second quarter, an increase of only 1% year-on-year and a month-on-month decrease of 10%.
Tencent‘s advertising revenue in the second quarter of this year was 18.6 billion, a year-on-year decrease of 18.42%. The game business faced a tightening of approval numbers for the authorization of new releases in addition to stricter protection policies in regard to minors, both of which caused Tencent‘s game business to realize a revenue of only 42.5 billion yuan in the second quarter of this year, a year-on-year decrease of 1%.
The violent fluctuations in the capital market have had a huge impact on Tencent. In the first half of this year, Tencent only generated 1.81 billion yuan from its investment portfolio, down 94% year-on-year. Meanwhile, the share prices of Meituan, Pinduoduo, JD.com, Sea Limited, and Kuaishou have all shown a cliff-like decline in the few years.
Starting in 2021, Tencent took the initiative to shrink its business by reducing its holdings of JD.com, Sea Limited, New Oriental Education’s Koolearn, Huayi Brothers Media Corp and other companies. Apart from distributing shares of JD.com to shareholders in the form of interim dividends, Tencent cashed out more than $3.3 billion from the rest. Moreover, Tencent‘s major shareholder, Naspers, also reduced its holdings over the last three months by about 76 million shares, totaling about HK$ 24.5 billion.
Tencent‘s three major businesses of advertising, games, and financial technology have continued to encounter pressure. The company hopes that WeChat’s short video and livestreaming platform, WeChat Channels, and overseas games are able to shoulder the heavy responsibility of growth. By the middle of this year, WeChat Channels had 813 million daily active users, surpassing Douyin’s 680 million. In the third and fourth quarters of 2021, Tencent‘s overseas game business grew by as much as 20% and 34%.