Tencenter Stage

Image source: intueri, Africa Studio - Shutterstock

What's going on?

Tense times for Tencent: the Chinese internet giant stepped into the spotlight on Wednesday and delivered fluent earnings – but it stumbled when it came to sales growth.

What does this mean?

Tencent’s revenue was up 20% last quarter compared to the same time last year – not bad, but still its smallest rise since 2019, with the Chinese government’s expanding tech crackdown likely hitting Tencent’s mobile gaming empire.

A $3 billion gain on its investment portfolio meant profit nevertheless grew by a better-than-expected 29%. Come its next set of quarterly results, however, Tencent might be announcing investment losses. The company is a big backer of Chinese for-profit education startups like Yuanfudao and VIPKid – and a radical overhaul of the industry last month banned such firms from, er, making a profit. Not only is that likely to undercut their valuations, but Tencent may now be stuck with these unattractive unlisted shares: with China’s new rules also banning such companies from “going public”, its only way out is to find some other sucker private investor to sell them to.

Why should I care?

For markets: Tencent none the richer.
Tencent’s own share price is down more than 40% from the all-time highs it hit in February. While the company isn’t being specifically targeted, its outsized influence in the modern Chinese economy has left it vulnerable to a government crackdown that’s rapidly expanded to cover data security and online content. Worried investors around the world have been selling the company’s stock as a result.

The bigger picture: There’s a new king in town.
With tens of billions of dollars knocked off Tencent’s market capitalization, it’s no longer Asia’s most valuable company: that crown now belongs to TSMC (tweet this). The world’s largest contract manufacturer of microchips has been reporting bumper profit recently thanks to the global chip shortage, and investors have sent the Apple supplier’s stock up accordingly.

Originally posted as part of the Finimize daily email.

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