Tencent's shares gain on acquisitions

The booth of Tencent is seen at a technology and projects fair in Fuzhou, Southeast China's Fujian province, June 18, 2016. [Photo/VCG]

China's biggest Web group spends big time to create digital service ecosystem "one stop shop"

The game based on the reality TV star's life just can't keep up.

App developer Glu Mobile Inc, which created the "Kim Kardashian: Hollywood" role-playing mobile game in 2014, has fallen the most out of 11 known listed investments tabulated by Bloomberg.

Its share price has dropped almost 60 percent since Tencent Holding Ltd's $126 million investment 16 months ago and 3.7 percent year-to-date.

Six of the 11 companies surveyed have fallen since Tencent's investments between 2011 and June this year. Tencent has at least a five percent stake in each of them. China's biggest internet company has been investing aggressively in add-ons from maps to mobile games to complement its WeChat and QQ social network services. Its strategy seems to be paying off for now－earlier this month, its second-quarter sales and net income beat analysts' estimates, and the shares rose to a new record.

It's quite obvious that Tencent is trying to "build an ecosystem for their digital service, to become a one-stop shop," said Sandy Shen, a Gartner Inc research director. "They've invested in maps and navigation companies, gaming, media content, user reviews, guides. They are trying to be present in every aspect of life a consumer would need services for."

On average, companies in the software and gaming sectors have risen since the investment. Chinese software maker Kingsoft Corp Ltd has soared 210 percent since Tencent's $115 million investment in July 2011. Game publishers Activision Blizzard Inc and Paradox Interactive AB have risen 135 percent and 83 percent since July 2013 and May this year respectively.

Tencent's mobile gaming revenue doubled to 9.6 billion yuan in its second-quarter. This outpaced a 52 percent rise in overall revenue to 35.7 billion yuan ($5.4 billion), and makes the company one of the biggest gaming providers in the world. Its gaming investments can benefit from leveraging its "huge" user base and utilizing its electronic payment system, Shen said, referring to TenPay.

Tencent's e-commerce investments, which include JD.com Inc, Leju Holdings Ltd and 58.com Inc, have on average fallen in the past few years. Leju and 58.com have dropped about 56 percent and 16 percent since March and June 2014 respectively. JD.com remains the bright spot in e-commerce; it has risen about 36 percent since Tencent's $214.7 million purchase of 15 percent stake in March 2014.

"There are usually multiple factors affecting share prices," Bloomberg Intelligence analyst Michelle Ma said in a phone interview. "From Tencent's perspective, they're looking for ownership and long-term strategic holdings; they may not mind the fluctuation of the share performance."

Tencent held minority stakes of between 5-23 percent in each of the 11 companies surveyed, including 5.023 percent in Activision Blizzard as of June 13, 21.5 percent in Glu Mobile as of February 23 and raised its stake in JD.com to 21.25 percent this month.

They "prefer minority investments as they choose to let the management of the investees run the company instead of trying to integrate them," Jialong Shi, an analyst at Nomura Holdings Inc said in an e-mail. "They are quite flexible in terms of the stake to be acquired."

The company, which is Asia's largest internet company by market value, also announced it would lead an $8.6 billion acquisition of game maker Supercell Oy in June this year.

Bloomberg