Please ensure Javascript is enabled for purposes of website accessibility

Tencent's Growth Threatens These 5 Companies

By Leo Sun – Apr 17, 2018 at 5:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

NetEase, Weibo, Baidu, iQiyi, and Alibaba are all on the tech giant’s hit list.

Tencent's (TCEHY -1.31%) stock soared more than 700% over the past five years, making it one of the largest tech companies in China. The 19-year-old company was founded on a single messaging product, the ICQ clone QQ, but expanded rapidly with new products and big investments.

In 2011, it launched WeChat, which became the most popular mobile messaging app in China. It expanded WeChat's ecosystem with online-to-offline (O2O) services, mobile payments, games, and other features -- making it an all-in-one "super app".

The Tencent Building in Shenzhen.

The Tencent Building in Shenzhen. Image source: Tencent.

Its gaming portfolio grew, as blockbuster games like League of Legends, Clash of Clans, Arena of Valor, and the mobile version of PUBG turning it into the top video game publisher in the world. It also expanded into adjacent markets to widen its moat against its tech rivals.

That expansion can be hard to keep track of, but investors should recognize the five companies which Tencent could hurt: NetEase (NTES 0.56%), Weibo (WB 2.03%), Baidu (BIDU -0.20%), iQiyi (IQ -2.17%), and Alibaba (BABA 1.18%).

Video games: NetEase

Tencent's biggest competitor in China's mobile gaming market is NetEase. NetEase's Fantasy Westward Journey and Chu Liuxiang are the second- and third-highest-grossing iPhone games in China according to App Annie.

Tencent's Arena of Valor (also known as Honor of Kings) holds the crown, while its QQ Speed and Chaos King games rank fourth and fifth, respectively. NetEase holds five of the top ten spots, while Tencent holds the other five. This makes NetEase the only Chinese publisher that stands a chance against Tencent's gaming empire.

NetEase's Fantasy Westward Journey.

NetEase's Fantasy Westward Journey. Image source: Google Play.

Unfortunately, Tencent has much deeper pockets than NetEase. Tencent finished last year with 105.7 billion RMB ($16.9 billion) in cash and equivalents, compared to 43.2 billion RMB ($6.9 billion) for NetEase. That superior cash position, combined with Tencent's stakes in overseas games, which it can bring back to China, make it a clear threat to NetEase's long-term growth.

Social media: Weibo

Tencent's WeChat monthly active users (MAUs) rose 11% annually to 989 million last quarter. WeChat's initial growth nearly sank Weibo, often dubbed the "Twitter of China," before the microblogging site rebounded by locking in more celebrities and brands and securing more hardware partnerships. Weibo finished last quarter with 392 million MAUs.

But this battle isn't over. Tencent is striking back at Weibo by luring top celebrities and brands to official accounts on WeChat. It's also dabbling with live video broadcasts, which have been a major source of sales growth for Weibo in recent quarters.

Streaming media: iQiyi, Alibaba, and NetEase

iQiyi, Baidu's former streaming video unit which was recently spun off in an IPO, often claims to be the top video streaming platform in China, with over 420 million MAUs on PCs and mobile devices and over 50 million paid subscribers.

Three women watch TV.

Image source: Getty Images.

However, Tencent Video, which was launched in 2011, hit 457 million MAUs last August, according to QuestMobile and Jefferies. Tencent stated that the platform had 43 million paid subscribers last November. iQiyi and Tencent Video are both larger than Alibaba's Youku Tudou, which hit 325 million MAUs last August.

As for music, Tencent Music -- which merges QQ Music, KuGou, and Kuwo into a single ecosystem -- controls over three-quarters of China's streaming music market, according to DCCI. Its only notable competitor is NetEase Cloud Music, which holds a 16% share.

Retail and mobile payments: Alibaba

Tencent's WeChat Pay and Alipay, which is owned by Alibaba affiliate Ant Financial, are the two largest mobile payment platforms in China. AliPay controls about 54% of the market, according to research firm Analysys, while WeChat Pay controls 40%.

Alibaba is still the top e-commerce player in China, but Tencent owns a big stake in its biggest rival, Tencent has also partnered with a growing list of retailers, including Walmart and Carrefour, to expand its payments ecosystem. Alibaba is fighting back with big brick-and-mortar investments of its own, but Tencent remains a stubbornly formidable competitor.

AI and the cloud: Alibaba and Baidu

Lastly, Tencent has been expanding its cloud platform, which already services over a million developers. The platform, which is supported by its QQ and WeChat platforms, is smaller than Alibaba and Baidu's cloud offerings, but it's rapidly growing.

Last quarter, Tencent reported that revenue from its "other" businesses surged 121% annually to 14.1 billion RMB ($2.2 billion), fueled by the growth of its cloud and payment services.

Tencent's expansion in the cloud complements its investments in new AI technologies, which crunch all the data it gathers from its social media and gaming ecosystem. That's why Tencent poached Baidu's AI expert Zhang Tong to lead its own AI Lab -- which consists of 50 AI scientists and 200 engineers -- last year.

The bottom line

Tencent won't crush NetEase, Weibo, iQiyi, Alibaba, or Baidu anytime soon. But investors in these companies should understand that Tencent is a growing beast, and that its expansion could cause pain for companies caught in the blast zone.

Leo Sun owns shares of Baidu,, and Tencent Holdings. The Motley Fool owns shares of and recommends Baidu,, NetEase, Tencent Holdings, and Twitter. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$33.82 (-1.31%) $0.45
NetEase, Inc. Stock Quote
NetEase, Inc.
$75.60 (0.56%) $0.42
Baidu, Inc. Stock Quote
Baidu, Inc.
$117.49 (-0.20%) $0.23
Weibo Corporation Stock Quote
Weibo Corporation
$17.10 (2.03%) $0.34
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$79.99 (1.18%) $0.93
iQIYI, Inc. Stock Quote
iQIYI, Inc.
$2.71 (-2.17%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.