Tencent’s resilient empire will prevail

Wechat is ubiquitous in China, yet its owner’s stock has plummeted, due mainly to a ban on new mobile games

When I handed cash to the cashier at a restaurant in Shanghai recently, he looked at me blankly for a moment. On the register were prominent signs for Wechat Pay and Alipay, the two dominant forms of mobile payment, which are used by hundreds of millions of Chinese instead of cash. The cashier took my money, and I ate my noodles overlooking the pond in the Yu Garden feeling uncharacteristically like a yokel.

African businesses have pioneered mobile payments on the continent. I use M-pesa in Kenya and haven’t been in a branch of my bank since FNB’S smartphone app became my personal banker. But China is riding a wave of mobile technology that is impressive.

Wechat has more than one billion users and is the “everything” app. It goes beyond messaging in a way Facebook Messenger and Whatsapp haven’t yet cracked. Wechat allows you to do just about anything — order a taxi, book a restaurant table then pay the bill, send friends money, use a chatbot with service providers, post “moments” that are like Instagram Stories or Whatsapp status updates, and more.

The share price of Naspers, the SA internet group that owns 31% of Wechat holding company Tencent, has surged because of Tencent’s rise and rise.

The Chinese messaging giant, which also developed the 800-million-user instant-messaging app QQ, has, according to Bloomberg, recorded a “67,000% return from its 2004 IPO through to January [that] trounced that of every other large-cap stock worldwide”.

Which is why the sell-off of its share is so remarkable.

It has lost $252bn since January, which Bloomberg calls “by far the biggest wipeout of shareholder wealth worldwide”. From its high of $576.7bn on January 23 it plummeted to as low as $324.4bn last week.

The main cause is a ban by the Chinese government on approving new mobile games, which account for about 40% of Tencent’s revenue. The ban was instituted in March and is likely to be lifted only next year. It wasn’t helped by an uncommon firstquarter drop in profits.

Overall, Tencent has been pushed out of the ranks of the top 10 mostvalued listed companies in the world.

The listing of Tencent Music Entertainment in the US has also been put on hold because of a slump in global tech stocks. Tencent was expecting to raise $2bn from the listing.

The global headwinds and Chinese regulatory crackdown appear to be hobbling Tencent, but I suspect the company will bounce back once both have been cleared.

Many commentators have pointed out that, while new games are banned, Tencent has many existing titles that continue to do well.

And it’s still the easiest way to pay for lunch — and everything else — in China.

Tencent will bounce back. Its subsidiary Wechat is still the easiest way to pay for just about anything in China