Tencent Holding (OTC: TCEHY) is a sprawling conglomerate that could be dubbed China’s Berkshire Hathaway. It has a number of diverse businesses under its fold, and it currently ranks among top companies in terms of global market capitalization.
The Hong Kong-based company also has an OTC listing. It's a technology and Internet services powerhouse with a presence in social media, gaming and advertising. Learn more about how you can buy Tencent stock in our guide.
Tencent, an investment holding company based out of Shenzhen, China, was founded in 1998. It was the 1st Chinese internet company to be profitable and the 1st Asian company to exceed $500 billion in market cap.
Initially set up as a software company, Tencent launched the QQ instant messaging app for the eastern market in 1998. With the release of QQ 2000, the company forayed into e-commerce. After posting losses for 3 consecutive years, Tencent broke even in June 2001.
In 2003, the company launched Tencent Messenger as well as Real Time Xchange, an enterprise instant messaging service. Tencent also entered into the MMORPG (Massively multiplayer online role-playing game) gaming space.
Tencent went public in June 2004 by listing its shares on the Hong Kong Stock Exchange. In the same year, it launched QQ2004 with several improved features and utilities. The shares were priced at HK $3.70, equivalent to $0.47 at that time, with the offering raising HK $1.55 billion. This represents a gain of over 9,000 until Sept. 5, 2018.
2005 introduced several products, including a C2C auction platform called PaiPai.com, an escrow online payment platform called TenPay, a social networking platform called QZone and QQFantasy, the 1st in-house MMORPG development.
In 2007, it became the No. 1 portal in China. The company launched QQ2009 as well as Xiaoyou social media platform in 2009. 2011 saw the introduction of Weixin mobile messaging app in China and the Buy.qq.com, a B2B2C platform.
Weixin was launched as WeChat internationally in 2012, while the company also launched Weixin Moments, which possessed social networking functionality, and Tencent Weiyun, a cloud storage. Subsequently, the company launched several new products and features, including Weixin Wallet mobile wallet, the addition of DIDI Chuxing taxi-booking facility to Weixin and several financial services options.
Tencent owns subsidiaries and associate firms that operate in a wide range of businesses such as:
- Video gaming
- Real estate
- Virtual reality
3 Reasons to Buy Tencent
Still contemplating an investment? Review our top 3 reasons to buy Tencent stock.
1. Exposure to rapidly expanding Chinese economy
Tencent is many businesses rolled into 1 and is poised to benefit from the growing Chinese consumerism. The opportunity is evident from Tencent's revenue growth over the years.
2. Financial strength
TCEHY has a strong balance sheet, with a 2020 free cash flow of $28.05 billion and market capitalization of $736.15 billion.
3. Recent weakness as a buying opportunity
From the year-to-date’s closing high of HK $473.584 (Jan. 23), the stock has lost about 28.5% (Sep. 4). The stock began to experience downward momentum in late March because of some insider stake sales, including those by South African media conglomerate Naspers, 1 of its early backers.
How to Buy Tencent
You can buy the stock directly or invest in funds that have exposure to the stock. There are 3 methods. OTC-traded shares of Tencent can be purchased from the domestic market, the original Hong Kong-listed shares can be bought through a broker or you can opt for electronic funds transfers (ETFs).
- Buy OTC-traded Tencent stock
You’ll need an account with a full-service or discount brokerage. Since OTC-traded shares are unlisted, purchases have to be routed through market makers who possess an inventory of securities. Once you place an order with your broker, it will then get in touch with the security’s market maker. The market maker quotes his ask price and it’s then matched with the bid price.
The bid-ask-quote is available through the over-the-counter bulletin board or OTCBB. If the order placed is a market order, the broker has to accept the ask price. Once the broker transfers money to the market maker’s account, the latter will transfer the security to the broker’s account. Alternatively, the order placed can be a limit or a stop order.
- Buy Hong Kong-listed Tencent shares
If you want to invest in Hong Kong-listed Tencent shares, look out for a broker that offers international share trading. It’s prudent to know upfront how much cost is involved in the transaction. There are other issues to contend with, such as capital controls imposed by governments to put a limit to the amount invested by a foreigner, differential tax treatments for domestic and foreign investors, etc.
Additionally, currency risk comes into the picture. As currencies fluctuate, an investor may at times lose out on the profits made on the stock due to the fluctuations in the currency.
- Gaining exposure through funds/ETFs
You can also invest in mutual funds or ETFs that have Tencent as 1 of their holdings. Here are some of them along with Tencent’s weighting in each of them given in parentheses:
iShares FTSE/Xinhua China 25 Index (ETF)(NYSEARCA: FXI) ( 7.97%)
iShares MSCI China Index Fund (NASDAQ: MCHI) (15.11%)
KRANESHARES TR/CSI CHINA INTERNET (NYSEARCA: KWEB) (8.78%)
SPDR S&P China (ETF) (NYSEARCA: GXC) (13.9%)
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Outlook for Tencent Shares
The fundamental outlook for Tencent is positive. The WeChat social networking, which has over 1 billion users, is only in the early stages of monetization. And Tencent has also made inroads into some fast-growing areas such as video, cloud computing and artificial intelligence.
Odds are in Tencent's favor. However, investors may have to be wary of geopolitical headwinds such as the regulatory clampdown on online gaming by China. The current depressed valuation tilts the scales markedly in favor of buying the stock.
Buy Tencent Stock Today
Tencent’s revenue growth rate, financial muscle and diverse portfolio could have what it takes to mitigate the impact of any potential downturn. Start with a trusted brokerage to line up your online investment today.