WeChat mascots are on display at the Tencent office in the TIT Creativity Industry Zone in Guangzhou, China on May 9, 2017.
Bobby Yip | Reuters
GUANGZHOU, China – Tencent shares fell more than 5% on Tuesday – a day after a major rally raised their valuation to nearly $ 1 trillion for the first time.
The Chinese internet giant jumped 767.5 Hong Kong dollars on Monday, up 11% at one point. That brought the company’s market capitalization to Hong Kong $ 7.35 trillion ($ 949 billion) on Monday.
Monday’s rally appeared to be fueled by bullish calls from two investment banks. In a research note, Citi raised its target price from 734 Hong Kong dollars to 876 Hong Kong dollars, up 14% from Monday’s close.
UBS also raised its target price on Tencent from $ 700 Hong Kong to $ 830 Hong Kong – an increase of more than 8% from Monday’s close.
But investors took profits on Tuesday, slipping Tencent shares around 5.48% to $ 724.50 Hong Kong dollars at 2:45 p.m. Local time. The stock fell over 6% earlier in the day but was able to reduce some losses.
Investors are waiting for Tencent’s 2020 fourth quarter and full year results to be released in March.
Analysts expect sales of 131.83 billion yuan (approx. 20.36 billion US dollars) for the December quarter, an increase of 24.6% over the previous year, according to estimates by Refinitiv. Net profit is expected to rise nearly 29% to 32.85 billion yuan.
Tencent is known for its huge gaming business, which analysts expect to have done well in the fourth quarter. In particular, sales of smartphone games are expected to increase by 46% year-on-year to 38 billion yuan backed by new title releases, according to a recent release from Jefferies.
Other analysts have also confirmed this.
“We expect solid results for the upcoming fourth quarter of 20 with an overall strength in the gaming business,” said Hanquonie analyst Han Joon Kim in a statement released on January 19.
Tencent has also expanded other businesses such as advertising, cloud computing, and financial technology through its WeChat Pay mobile payment system.
WeChat in particular was a focus of investors.
Last week, Tencent announced that transactions under its WeChat Mini programs grew more than 100% in 2020 from 800 billion yuan in 2019. The company didn’t release the 2020 number. However, it does show how Tencent is trying to monetize the WeChat messaging app, which is used by over a billion people, and add some stickiness.
Mini-programs are apps that users can use in WeChat without leaving the messaging app. You’ve been an integral part of WeChat’s growth.
Although WeChat’s monetization efforts are still in the early stages, analysts see this as a long-term effort.
“We continue to place more emphasis on improving accessibility and functionality than on monetization. We consider the lack of monetization of mini-programs in 2021 to be okay, as the expectation that such programs are embedded in profit expectations is limited anyway,” said Kim from Macquarie.
Rather, Tencent’s growing influence on online trading will bolster the long-term display of the stock and support its valuation multiple.