Pony Ma, chairman of Tencent Holdings, has boosted his wealth by almost $8 billion this year as the Chinese web giant recovers following years of regulatory crackdown, reporting a big jump in earnings on Tuesday. His net worth may increase further thanks to new game releases and rising demand for advertising on WeChat, the company’s immensely popular messaging app.
Ma, 52, now has a wealth of $41 billion mostly based on a company stake, according to Forbes estimates. Although Hong Kong-listed Tencent’s shares are still down almost 50% from a peak in early 2021, they have risen nearly 30% this year.
Investors are showing interest in assets from China as they retreat from markets like Japan, attracted by cheap valuations and a post-pandemic recovery in the world’s second-largest economy. Tencent’s bread-and-butter gaming business is starting to win player attention again after sales contracted in the first quarter of this year. In the meantime, advertising revenues exceeded expectations.
“As a bellwether stock for China’s digital economy, Tencent remains a preferred choice among global investors as they rotate back to China,” says Charlie Chai, a Shanghai-based analyst at research firm 86Research. “Among its peers, it stands out for its diverse portfolio of quality assets that are still being monetized and probably vastly under-appreciated.”
Chai is referring to businesses such as video and international games. The former, which includes ad offerings in the video streaming section of the company’s WeChat super-app, is a key reason that the reported profit attributable to shareholders surged a better-than-expected 62% to 41.9 billion yuan ($5.9 billion) during the Jan.-March period from a year ago, says Shawn Yang, a Hong Kong-based senior research analyst at Arete Research. Meantime, the company reported a 6% year-on-year rise in total sales to 159.5 billion yuan in the first quarter.
Tencent is making more money as companies in sectors such as games, internet services and consumer goods place ads on WeChat, where the length of time spent by its almost 1.4 billion users watching livestream and video clips climbed 80% year-on-year, according to the company’s first-quarter results. “We expect Tencent to continue to gain market share in advertising thanks to strength in video accounts and ad tech upgrades,” analyst Thomas Chong of investment bank Jefferies wrote in a May 14 report.
Its bread-and-butter gaming business is seeing signs of recovery despite reporting a 1% fall in revenues to 78.6 billion yuan in the first quarter. During a call with analysts Tuesday, executives highlighted user spending on major titles such as Honour of Kings and Peacekeeper Elite. That included advance payments and deposits in player accounts that might not have been included in the first quarter accounting period.
Players are becoming more enthusiastic about improved content, according to Tencent executives. They are also waiting for the release of the much-anticipated Dungeon and Fighter mobile game on May 21. Also this month, Supercell, the Finnish developer of mobile game Clash of Clans, will release its first new game in five years. In 2016, Tencent bought a majority stake in Supercell for $8.6 billon.
But Tencent faces serious competition, as major gaming companies—including competitor NetEase—release new games soon ahead of the crucial summer holiday season. When it comes to advertising, Arete’s Yang says the year-on-year growth rate of those revenues might subside.
The first quarter of 2023 set a low base for comparison as China was coming out of Covid lockdowns and demand for advertising was tepid. On the analyst call Tuesday, Tencent Chief Strategy Officer James Mitchell mentioned potentially slower advertising growth in coming quarters amid an economic recovery that isn’t entirely stable.
But he also struck an optimistic note. “We think that we are in a good position to continue taking share of the market at a rapid rate, given we’re very early in increasing our ad load on video accounts, which is currently around one-quarter of the ad loads of our major competitors with short video products,” he said on the analyst call.
