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

Financial Mail - - PATTERN RECOGNITION -

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

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