Will tencent’s market value surpass that of the American giant?
The top five market capitalisation of global listed companies is still dominated by us IT giants, but tencent and alibaba are already ranked 7th and 8th respectively…
China’s two biggest Internet companies are unstoppable. Tencent holdings and alibaba group’s share price are even more innovative, with the two companies now worth more than 100 trillion yen ($880 billion), more than double the amount at the end of 2016. While the share prices of us companies, which dominate the market capitalisation of the market, have risen by 30 to 60 per cent, they are nowhere near two Chinese companies. Tencent ranks seventh in terms of total market capitalisation of listed companies globally, with alibaba in eighth place. Will the days of China’s top two companies, including Alphabet (the parent company of Google), come?
The appeal of a billion users
At the end of November, tencent opened its WeChat headquarters to foreign media in guangzhou, China, and zhang jun, vice President of WeChat, was confident that WeChat would change the way people live in the future.
It was here seven years ago that tencent started its social networking service, WeChat. At the time, it was also called “China’s LINE”, and now the number of users is far beyond LINE, becoming a daily necessity for Chinese people.
WeChat services are rapidly expanding using Shared bicycles, payment of public services, appointment of hospital appointments and remittance among friends. The number of users is expected to reach 1 billion this year. The 1 billion people send the message 38 times a day on average through WeChat. The message, which is still growing at 25 per cent, shows a strong momentum.
And the huge user base that is approaching 1 billion attracts a lot of attention from enterprises. WeChat’s corporate user registration is no less impressive than that of individuals, and it has reached more than 20 million. Rather than using personal computers, Chinese companies have been more inclined to build Windows on WeChat, which can easily operate on smartphones, and to promote the promotion and promotion of goods and services.
And tencent is of more than 50 trillion yen ($440 billion) for a market value of weapons, through abundant capital strength enlarging investment targets to many areas of business, gradually to get investment income management model. The average investment frequency can reach one company every three days. In march, tencent paid about y200bn to tesla. In June, tens of billions of yen were poured into mobike. The more they invest in companies, the more their share prices rise, forming a virtuous circle.
The head of tencent’s investment division revealed the idea that it will not restrict investment in the future, as long as it has good projects, it will continue to invest. Overseas, the company is preparing to beef up its offensive in Asia. China alone has 1.4 billion people, and if you add 600 million people to southeast Asia and 1.3 billion people in India, it will be a market for more than 3 billion people. China’s Internet companies are looking to this market.
The key to overtaking us companies is in Asia
“If we can avoid power is still weaker U.S. companies in Asia) interference, firmly grasp live here, don’t need to go to effort to develop mature market in Europe and a population of 300 million, with its population of 500 million, the American market”, tencent company executives read this way.
Tencent’s rival alibaba has the same idea. The current pattern is the us amazon (1182.55, 5.79, 0.49 per cent) operating in developed countries such as Europe and the us, while alibaba operates in China. But in Asia outside China, the two sides have yet to decide. Amazon this summer set up its first south east Asian distribution center in Singapore as a symbolic move into Asia.
Alibaba by acquiring electric business platform Lazada one step ahead in south-east Asia, August to Indonesia again large electrical contractor (EC) companies to invest more than 100 billion yen, the contention of Asia’s sphere of influence is more and more fierce. Tencent has not easily let it go, and its executives have even said they must take the Asian emerging markets.
In terms of expectations PER (p/e) as an investment indicator, tencent and alibaba are around 30 to 40 times, at the same level as Facebook and Alphabet in the us. It was pointed out that “if the growth potential is to be considered, the share price is not high” (foreign securities firm).
The growth of tencent and alibaba in the almost monopolistic Chinese market will be the key to overtaking us companies in the future.
A single profit structure is a short one
The strength of tencent and alibaba, two of China’s biggest Internet companies, is impressive, but its earnings are still a lame duck. 70% of tencent’s sales come from gaming. If popular goods are hard to sustain, they will be in danger. The focus on “WeChat” and the smartphone settlement business did not yield significant gains. Meanwhile, the business is concentrated in China, where sales are only 5 per cent.
Alibaba faces the same problem. Eight to nine percent of sales are from e-commerce businesses, and overseas sales are only 1-2 percent. Although it has rolled out popular smartphone payments in about 30 countries, it is more like a service for Chinese who travel overseas.
Although both companies have yet to shake off a single profit structure, the market capitalisation is still expanding rapidly in a year. The reason for this is that the market believes that the Chinese market is still in the growth stage and there is plenty of scope for business development. Tencent invested 75 companies in 2016 and 113 in 2017, but most of them are Chinese companies.
On the one hand, if the seeds of the two countries, such as south-east Asia and India, can germinate successfully, it is likely to lead to higher evaluations.