Tencent (OTC: TCEHY), the Chinese tech conglomerate that owns the popular WeChat and QQ messaging and payments apps, reported earnings this week that topped forecasts, sending shares up over 5% Thursday.
The tech giant saw net profits up 61%, operating profit up 59%, online ad sales surged 55%, and the company’s cloud revenue more than doubled.
Tencent—which is run by China’s richest man, Ma Huateng (aka Pony Ma)—is like a mix of America’s most popular gaming and social media properties all rolled into one. Like if Facebook, Instagram, WhatsApp, Snapchat, Electronic Arts, and Activision Blizzard were all under one umbrella.
Earlier this year, the stock took a hit on fears that the company’s growth was slowing, but this week’s reported results have silenced the skeptics.
The Chinese tech giant had lost almost $100 billion in value in recent months as investors prepared for a squeeze from increased spending and investments. But now the company has delivered record quarterly profit and has beat expectations on margins. The reaction put Tencent back into the $500 billion club.
With Tencent, a buy-and-hold strategy has proven to be the only strategy. The proof? Excluding dividends, the stock has returned about 45,180% to shareholders in the 14 years it has been listed in Hong Kong, according to Bloomberg.
After Thursday’s blockbuster earnings report, analysts raised price targets on Tencent. At least 12 brokerages boosted their targets on the stock, with Essence Securities having the most bullish view at HK$520.80, which would be a gain of 34% on the stock that has already more than doubled in value this year.
Analysts cited the strong enthusiasm for Tencent’s mobile gaming apps. Revenue from its online games grew 26% year-over-year from strength in the company’s mobile games, including its Honour of Kings title, which has an estimated 200 million players.
The company has also achieved “global leadership” in the tactical tournament genre with its Fortnite title, which boasts 40 million monthly active users globally across PC and console, and with adoption boosted by its recent mobile release.
Its social media revenue jumped 47% year-over-year from growth in its streaming video and music subscriptions, and sales of in-game virtual items. Tencent’s WeChat social messaging app has reportedly topped 1 billion users for the first time. And streaming video subscribers to Tencent Video—which is similar to Hulu—has increased 85% compared to last year.
And the company’s revenue contributed by its “other” segment rose 111% driven by the doubling of cloud computing revenue and its digital payments businesses.
Tencent’s Ma Huateng said about the results, “We drove adoption of our infrastructure services, seeing notable progress in areas such as mobile payment, cloud services, online financial services, and smart retail. We will continue to invest in improving our own products as well as enabling services for our partners, in order to fulfill our mission of enhancing the quality of life through internet services.”
While the company doesn’t provide guidance, its aim to “continue to invest” has so far worked out well for investors.
Tencent’s strength clearly lies in its diversification across segments. And as astounding as these results are, given the company’s continuing investments, it seems likely it will continue to rise for the foreseeable future.