Global Tech

Tencent Approaches Facebook Value Amid China Web Boom

(Corrects estimated size of China’s game market in third paragraph of story published yesterday.)

Tencent Holdings Ltd. (700)’s market value surpassed $100 billion within a decade of going public as Asia’s biggest Internet company capitalizes on China’s explosion in online gaming and messaging.

Tencent’s 2.2 percent increase in Hong Kong this week lifted its market value to HK$780.6 billion ($101 billion). The company run by billionaire Pony Ma joins six other members of Hong Kong’s benchmark Hang Seng Index in the $100 billion club, including PetroChina Co. (857) and China Mobile Ltd. (941)

China’s online population surged almost sevenfold since Tencent’s 2004 initial public offering, with revenue at the Shenzhen-based company more than doubling in the past two years. China’s online gaming sales are expected to reach 130 billion yuan ($21.2 billion) by 2016, from 66.2 billion yuan last year, according to Shanghai-based Internet consulting firm IResearch.

“Mobile Internet was the main driver, as this sector has been posting very fast growth,” said Eric Qiu, an analyst at CCB International Holding Ltd. in Hong Kong. “There should be no problem for Tencent’s momentum to last until the end of this year and into the next.”

Tencent’s market capitalization is greater than that of SoftBank Corp. (9984), McDonald’s Corp. (MCD) and Boeing Co. (BA) It trails a handful of technology companies worldwide, including Apple Inc., Google Inc., Microsoft Corp., Samsung Electronics Co. and Facebook Inc. (FB), which is valued at $103.5 billion.

Tencent Deal

Jerry Huang, a director of investor relations at Tencent, didn’t respond to a text message and e-mail seeking comment.

Also yesterday, Tencent said it paid $448 million for part of China’s third-largest search engine to help compete against Baidu Inc. Tencent bought a 36.5 percent stake in Sohu.com Inc. (SOHU)’s Sogou unit with an option to increase that investment to 40 percent, according to a joint statement after the Hong Kong market closed.

Tencent shares fell 0.2 percent to HK$420.20 at 1:34 p.m. in Hong Kong. Sohu rose 7.5 percent, the most since March 5, in New York yesterday.

Tencent was founded in November 1998, and its early services focused on e-mail, dating and online games. Tencent raised more than HK$1.7 billion from an initial public offering in 2004.

China had 591 million Internet subscribers at the end of June, compared with 87 million at the end of June 2004, according to China Internet Network Information Center’s website.

QQ, WeChat

The number of people in China accessing the Internet via mobile devices rose 10 percent to 464 million by the end of June from six months earlier, according to the center. That’s greater than the population of any other country except India.

Tencent shares have risen 69 percent this year, compared with a 2.3 percent gain in the benchmark Hang Seng index.

The company’s rise has enriched others, including largest shareholder Naspers Ltd. (NPN), which owns about a third of the stock. Shares of the Cape Town-based company surged 76 percent this year, compared with an 11 percent gain on the FTSE/JSE Africa All Shares Index.

Tencent’s QQ instant messaging service had 818 million monthly active users at the end of June, and its WeChat service had 236 million. That compares with about 1 million instant-messaging accounts in 1999, according to its website.

“They were on the forefront of the whole mobile shift,” said Billy Leung, an analyst at RHB Research Institute Sdn. in Hong Kong.

Alibaba IPO

Ma, China’s third-richest man, has a net worth of $10.8 billion, according to the Bloomberg Billionaires Index. Facebook founder Mark Zuckerberg has a net worth of $20.8 billion.

Tencent is developing offerings for WeChat, known as Weixin in China, to compete with Alibaba Group Holding Ltd., the nation’s biggest e-commerce company. More than 84 percent of China’s Internet users regularly access instant messaging, making it the most popular online application in the country, according to data compiled by Bloomberg.

“WeChat is a new growth driver, and the government is carrying out new policies to help boost technology growth,” said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. “If Tencent can keep growing its user base, its momentum will last.”

Alibaba may consider an initial share sale that could be the largest since Facebook. The Hangzhou-based company has a value of about $87 billion, according to the average of 11 analyst estimates released in July.

‘Call of Duty’

Tencent’s net income will increase 25 percent to 16 billion yuan this year, according to the average of 21 analysts’ estimates compiled by Bloomberg. It’s investing the most since 2009 on research and development, building games and other mobile applications to lure people spending more time on their smartphones and tablets.

Online gaming accounted for 52 percent of Tencent’s 43.9 billion yuan in revenue last year, while sales from mobile applications contributed about 9 percent, according to data compiled by Bloomberg.

Tencent is majority owner of U.S.-based Riot Games Inc., which developed “League of Legends,” and announced plans in July to buy 15.4 percent of Activision Blizzard Inc. (ATVI), owner of the hit titles “Call of Duty” and “World of Warcraft.”

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

Enlarge image Tencent Holdings Ltd.'s WeChat App

Tencent Holdings Ltd.'s WeChat App

Tencent Holdings Ltd.'s WeChat App

Tomohiro Ohsumi/Bloomberg

Tencent has been developing offerings for WeChat, known as Weixin in China, to compete with Alibaba Group Holding Ltd., the nation’s biggest e-commerce company.

Tencent has been developing offerings for WeChat, known as Weixin in China, to compete with Alibaba Group Holding Ltd., the nation’s biggest e-commerce company. Photographer: Tomohiro Ohsumi/Bloomberg

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