Tencent (HKG:0700) | Digital Powerhouse

Updated: Sep 22

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Key Points

  • Tencent is a world-leading internet and technology conglomerate with a huge range of intellectual properties such as social media, gaming, cloud services

  • Founder and CEO, Pony Ma owns 8.3% stake in shares outstanding himself, ensuring alignment of management and shareholders interests

  • Tencent continues to be one of the strongest leaders in the growing social media, payments, and gaming economy

  • Stellar cash conversion cycle of -85 days

  • Tencent's WeChat network effects continue to be the backbone of its business

  • Continued improvement of its other business segments allows Tencent to continue growing

  • Optionality of investing in promising startups with its sustained cash flow allows Tencent to remain a sustainable superior business model

Company Overview

Company History

Founded in 1998 in Shenzhen, China, Tencent has now developed into a world-leading internet and technology company with a huge digital ecosystem embedded into consumers’ lifestyles. Its operations are mainly situated in China while some of its gaming segments are being produced globally.

Tencent develops communication and social services such as Weixin and Wechat that connect more than 1 billion people around the world and enable them to access transportation and pay for daily necessities. Tencent also develops and invests in some of the world’s most popular PC and mobile games such as Riot Games, PUBG mobile, Call of Duty mobile, etc. In addition, Tencent has a portfolio of high-quality digital content such as long-form videos, music, literature, and news. Tencent also provides a range of business services such as cloud computing, advertising, and fintech for its clients to participate in digital adoption and business growth.

Revenue Segments

Tencent owns a huge range of intellectual properties from applications to games. Tencent generates revenues through the monetization of advertisements as well as payments for subscriptions and Valued Added Services (VAS) of these intellectual properties. Its revenues mainly can be divided into 4 segments: Fintech and Business Services, Online Advertising, VAS: Games, and VAS: Social Networks (See Infographic below). The business segments supplement one another to form a sticky business model that resonates with consumers’ everyday lifestyles.

Online Advertising

Tencent’s online advertising business segment consists of three main sub-groups of advertising properties: Social, Media, Tools, and Others (See Infographic below). Revenues are generated from these three sub-groups through the monetization of targeted advertisements placed in their advertising properties. Tencent uses its AI technology, data analytics to improve their click-through rates of their advertisements to constantly push for a higher rate of investments by advertisers.

According to Statista, Tencent is way ahead of all its competitors in China in terms of mobile applications usage. As of September 2020, Tencent owns a share of 40.9% while the closest competitor, ByteDance, stands at a much lower value of 15.4% (See Infographic above).

Fintech and Business Services

The Fintech Services are divided into two categories: Payment Solutions and Other Fintech Services.

Revenues generated from Payment Solutions are from commercial or social transactions that happen on Tencent’s social applications such as WeiXin and WeChat Pay. Revenue from commercial transactions includes a collection of 0.6% take rate from merchants when consumers use WeiXin Pay to pay for their goods or services. Revenue that comes from social transactions occurs when consumers send red packets or make utility payments.

Revenue from Other Fintech Services is generated through 3 platforms: LiCaiTong, WeSure, and WeiLiDai. The platforms generate revenue for Tencent by offering different services such as wealth management or insurance services for enterprises and providing small loans for its consumers (Refer to Infographic above)

Revenue from Business Services include two categories: Cloud and other Business Services

Under Cloud services, Tencent owns platforms such as TencentCloud, WeCom and Tencent Meeting/ VooV Meeting. These platforms generate revenues by providing Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS) and technological solutions to enterprises.

Under Other Business Services, Tencent owns platforms such as Smart Retail, Smart Healthcare, Smart Transportation and Smart Education. These platforms generate revenues for Tencent by providing solutions and guides to enterprises in various industries to transform digitally.

VAS: Games

Tencent owns a very strong portfolio in their gaming business segment (Refer to infographic below). Some of the more well-known investments include Riot Games (100%), Epic Games (40%) and Bluehole (11.5%). These investments have produced well-known games such as League of Legends, Fortnite, PUBG mobile, Valorant. Tencent games are usually free to download. The way Tencent generates revenues is through Valued Added Services (VAS) such as in-app purchases of virtual goods or extras by consumers in these games.

VAS: Social Networks

In addition to games, Tencent also owns a very strong portfolio of digital content services that it monetizes (Refer to Infographic below). Revenues are generated through subscriptions by consumers of these digital content services. Revenues are also generated through VAS in these digital contents.


Ma Hua Teng is the founder and the current CEO of Tencent. Pony Ma is managing the overall management and strategic direction of Tencent. Previously, he worked in China Motion Telecom Development Limited leading the project for the company’s internet paging system. Pony Ma is the only individual in the management team to hold Tencent shares. His current stake stands at 8.38% of shares outstanding. The high share ownership by management ensures that Tencent and management interests will be aligned.

Industry Overview

Tencent operates in the social media, Gaming, FinTech, and Cloud segments. Despite Tencent’s growing foothold in their new ventures such as Cloud services as well as fintech services including wealth management and insurance, we have decided to streamline our focus for the industry analysis into Tencent’s already large segments which include social media, Gaming, and Payments. As such we will be analysing each of these 3 industries individually.

Social Media

In the below analysis, we used mostly China’s number as Tencent’s social media business is most prominent in that of China.

As of 2020, China still had one of the lower social media penetration rates as compared to other countries.

Despite its low penetration rate, China leads all other countries in terms of the number of social media users in 2020 already and is expected to grow even more by 2025, far surpassing notable countries such as India, Indonesia, and the United States.

Diving deeper, the growth of the social media active users could be mainly attributed to the increase in social media penetration in China. It is expected to grow by a CAGR of 4.3% from 2021 to 2025, on top of its already high volume. Additionally, Ad Spending on social media is also expected to grow by a CAGR of 4.4% from 2021 to 2025. This goes to show that China’s market for social media still has room for growth despite its already large size and social media platforms in China have much to gain.

As we dug further into the competitor analysis, we found that Tencent dominates the social media space with both its flagship apps, WeChat and QQ, on the podium of the leading social media apps in China by global MAU. We also expect the market share to remain relatively similar over the next few years due to the nature of the industry which requires a large network effect to be successful. Furthermore, due to regulatory concerns, many of the other social media giants are unlikely to be able to enter the Chinese market as they would be blocked by the “Great Firewall”. With a large portion of its users in China, we believe that Tencent can capitalize on the growth of the market and that the Chinese social media market is Tencent’s for the taking.

Lastly, for the social media segment, we found that WeChat and QQ are ranked 3rd and 4th respectively globally in terms of the most popular global mobile messaging apps. This shows how influential Tencent is in the social media space and shows a glimpse of how they can leverage their platform for their other business segments.


Moving onto the Gaming industry, we included the global market sizes as Tencent’s gaming business affects the global market. Tencent signature games include:

Mobile games

  • Honor of Kings

  • Call of Duty Mobile

  • PUBG Mobile

  • Etc.

PC Games

  • League of Legends

  • Valorant

  • Fortnite

  • Etc.

Additionally, they have partnered with Nintendo to be their distributor in China and has distributed over 1 million Switch consoles and will go one step further to publish many Chinese Switch titles in China as shown in the images above.

From the charts above, we can see that the global video market value is expected to grow from 2021 to 2025 with a CAGR of 10% and mobile games leading the way in terms of revenue generated.

Mobile Games

The reasons as to why mobile gaming is likely to enjoy higher growth as compared to its counterparts include:

1. Lowest barrier to entry for gamers due to high smartphone penetration globally

2. Portability and convenience factors when compared to console and PC games

3. Increasing quality of mobile games as they become more immersive, have better graphics and controls

4. Improvement in smartphone technology to accommodate higher CPU usage games

5. Increasing variety and range of difficulty of games within mobile gaming that accommodates to a larger target audience

Once again, Tencent has shown why it is elite even in the mobile gaming industry as 2 of its games earned the top 2 spots in terms of overall revenue generated. Honor of Kings led with US$258.8 million in player spending, a 38.4% growth from April 2020 to April 2021. This was followed by PUBG Mobile with US$237.7 million in gross revenue.

PC Games

The table above shows the most popular PC Games globally in terms of MAU. Tencent also excels within the PC Games industry through its affiliated companies, Epic Games and Riot Games. They achieved the 2nd place, 5th place, and 8th place within the top 10 games with League of Legends, Valorant and Fortnite respectively. Another noteworthy mention is that no other game publishers have managed to have 2 games within the top 10 list other than Riot Games, which is owned 100% by Tencent.

Dwelling deeper into the e-sports segment of the PC Games industry, the top 15 esports games globally in terms of revenue earned included 5 of Tencent-affiliated games namely, PUBG Mobile. Fortnite, Arena of Valor/Honor of Kings, Valorant, and League of Legends. Valorant and League of Legends are also ranked 2nd and 3rd in number of esports players.

To give an overall view of where Tencent stands in the overall gaming market, Tencent currently holds the top position, leading all other gaming companies in terms of revenue generated from gaming. This is no wonder when you take into consideration the stellar results above where they dominate the 2 markets (mobile and PC) in the gaming industry.


For Tencent’s FinTech business, we focused on the China market as this business segment is predominantly in China as well as the digital payment industry as we believe that despite their other growing FinTech businesses, a large proportion lies in the Digital Payment Service by WeChat Pay and QQ Pay.