The Tricky Task of Tracking Tencent's Earnings

Hello, this is Lulu. When it comes to accounting for investments, Tencent and Alibaba play by different rules.

This past quarter Tencent surprised investors by blowing past analysts’ profit estimates by about 35 percent. Most of that was fueled by the internet company’s gains in portfolio investments. With their core businesses growing strong—Alibaba in e-commerce and Tencent in gaming—the two companies have ventured out to invest a combined $55 billion in everything spanning from FinTech to bike rentals.

How these two Chinese web giants account for valuation increases and writedowns in their startup investments is worth noting, because both have sprinkled cash into more than 100 companies, according to data compiled by Bloomberg.

Alibaba, listed in the U.S., reports under GAAP rules and doesn't record any valuation gains for minority investments in public or private companies. For example, Alibaba is a minority shareholder in Weibo; when it bought into the social-media company in 2013, it was valued at just more than $3 billion. Now, Weibo is worth more than $20 billion, yet Alibaba doesn't mark that as a gain, unless one day it sells the stake or takes full control of the enterprise. Alibaba does include on its income statement any share of profit or losses made by companies it has stakes in, such as Koubei.

Tencent, however seems to be a different story. Reporting under IFRS rules, Tencent is listed in Hong Kong, where local property entities often mark up their assets for income gains. The company didn't fully disclose how and what it categorized as “other gains" in earnings this quarter. While many analysts might consider this a one-off thing, these non-operating items “can fluctuate from quarter to quarter based on non-recurring events,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services. "Investors might want to do some adjustments to get the real sense of Tencent's operating margin."

That could mean for stakeholders, estimating Tencent’s financial performance could become more of a guessing game.

Sign up to receive the Fully Charged newsletter in your inbox, and follow Bloomberg Technology on Twitter and Facebook for more.

And here’s what you need to know in global tech

It’s iPhone season again. Here’s what we know about Apple’s new flagship device.  Apple plans to release three new phones: successors to the iPhone 7 and iPhone 7 Plus as well as a new, revamped model that sits at the high-end. The iPhone 8 will get a new screen that takes up the entire front of the device, advanced cameras and other new upgrades.

After Hewlett-Packard broke into two, the enterprise-focused HPE got most of the technology and growth customers. Now, it’s looking like the underdog, the consumer-focused HP Inc., is coming out on top, embracing higher-end products and expanded revenue despite lackluster spending on PCs and printers. HPE, meanwhile, has failed to meet sales projections for four consecutive quarters. 

Wal-Mart and Google are teaming up to fight Amazon. Soon, Wal-Mart customers will be able to link their store accounts to Google’s shopping service and use voice-activated Google Home speakers to buy hundreds of thousands of items for delivery. The collaboration is their latest attempt to match the convenience of Amazon, which delivers a bigger online selection and has a dominant line of voice-activated Echo speakers. 

Suddenly, everyone’s talking about killer robots. This week, Elon Musk came out as part of a group of 116 experts calling for an outright ban on the development and use of killer robots as weapons. Even robots already on the market can be reprogrammed to do harm, according to IOActive. That’s a frightening thought if in the future, robots start taking care of grandma and grandpa

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE