Tencent (NASDAQOTH:TCEHY) is usually recognized as the maker of WeChat, the most popular messaging app in China, and the biggest video game publisher in the world. However, the tech giant is also a major investor in other high-growth companies.
In China, Tencent holds double-digit stakes in online search company Sogou, online classifieds platform Wuba, app maker Cheetah Mobile, e-commerce giant JD.com, and online-to-offline (O2O) real estate platform maker Leju.
Back in 2015, Tencent bought a 15% stake in Glu Mobile for $126 million. It gradually boosted that stake to nearly 21%. Tencent believed that the deal would bring some of its Chinese mobile titles westward, while introducing some of Glu's games to China.
However, Glu struggled over the past two years as interest in celebrity-backed games like Kim Kardashian: Hollywood waned. It eventually got its groove back with new titles like Cooking Dash, Covet Fashion, Deer Hunter, Design Home, and MLB Tap Sports Baseball, but its losses widened as it ramped up its sales and marketing efforts.
That's why shares of Glu have dropped about 40% since Tencent's initial investment. Nonetheless, brighter days could still be ahead, with analysts expecting 4% sales growth and a return to profitability this year.
Tencent made a smarter investment in Snap. It bought a 12% stake in the Snapchat maker late last November when the stock had fallen well below its IPO price of $17 on concerns about its slowing user growth, widening losses, and competition from Instagram.
However, shares of Snap recently soared back above its IPO price after its fourth quarter report allayed some of those fears. Its year-over-year growth in revenue, daily active users, and average revenue per user all accelerated from the third quarter thanks to a redesign of its platform and a switch to programmatic ad buys.
Snap remains deeply unprofitable, and the stock is pricey at nearly 30 times sales. But the bearish case against the stock has weakened, and it's rallied a whopping 30% since last November. It's unclear if Snap and Tencent's WeChat will ever integrate their features with each other, but Snap previously declared that it was open to sharing "ideas and experiences" with Tencent.
Tencent was one of several big investors that helped Activision Blizzard CEO Bobby Kotick repurchase the company's shares from Vivendi in 2013. Tencent still owns a 5% stake in Activision, which is worth about $2.5 billion after the stock's 400% rally over the past five years.
Back in 2015, Activision partnered with Tencent to bring Call of Duty Online to China as a free-to-play game with in-game micro-transactions. That partnership enhancesTencent's gaming business, which owns hit tiles like League of Legends, Clash of Clans, and Arena of Valor (Honor of Kings). The growth of those titles lifted Tencent's online gaming revenues by 48% annually last quarter.
Last March, Tencent bought 5% of electric vehicle (EV) maker Tesla Motors. The stock has risen about 12% since Tencent's investment, which complemented its stakes in Chinese EV maker Nio (formerly known as NextEV) and ride hailing service Didi Chuxing, which bought Uber China and launched a research lab in the US.
Chinese OEMs manufactured 43% of the world's EVs in 2016, according to McKinsey & Company. EVs are also considered a major stepping stone toward fully autonomous vehicles, which are currently being tested on public roads in China.
Is Tencent the "Berkshire of Tech"?
Last November, Barron's Assif Shameen told investors to "think of Tencent as a sprawling tech conglomerate in the mold of Berkshire Hathaway."
The comparison isn't perfect, since Berkshire usually pursues value as Tencent pursues growth, but the latter certainly represents a lucrative way for investors to gain exposure to a wide range of promising businesses.