Please ensure Javascript is enabled for purposes of website accessibility

Here's How Tencent Can Grow Outside of China

By Motley Fool Staff – May 22, 2018 at 10:53AM

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

Though it has the largest social messaging app in the Middle Kingdom, it will be tough to duplicate that success in other countries.

In this segment from Industry Focus: Tech, analyst Dylan Lewis is joined by contributor Danny Vena to discuss the back door Tencent (TCEHY -1.31%) has that will enable it to grow internationally.

A full transcript follows the video.

This video was recorded on May 18, 2018.

Dylan Lewis: When I look at this company, Danny, I'm not so much worried about what's going on in China with them. I think they have the massive installed base there, to borrow what you said before, they're like the Facebook, PayPal, you name it, they are that company for China. What really becomes interesting to me is, can they grow this business outside of China, as well? They already have a huge runway within their domestic market, but if they can get outside of that, then the growth opportunities become even more interesting.

Danny Vena: And I think one of the things that you can look at is, with all of the other investments that they've made in companies outside of their core market, that gives them an in in so many different countries. They may not be able to replicate that type of success in their international markets as they have in China, just because the way we use apps is so segmented compared to China.

But, that said, they have so many ways into other countries -- for instance, Activision Blizzard and Epic Games. They're around a 40-45% owner of Epic Games, which is all around the world. So, they have ways to grow in international markets.

Lewis: And I think this company is a really great bet on a lot of trends that we really like in the tech space. We've talked a ton in the past on the show about the gaming industry and how successful Take-Two, Activision, EA have been as investments over the last five years. We look at esports as a megatrend that's really rising. This company has exposure to that. This company has exposure to mobile in general, but also the payments industry. I think that's really interesting.

This is a big business. Recently, I've tried to look for smaller tech players, just because I think the growth opportunities are better and the opportunities for returns are a little bit better. But I also look at them and I'm like, yeah, they're a $500 billion company, but out of any company that size, I think this is the most realistic double in the next five to ten years, that I can see.

Vena: I think you're right. This is a company that I'm looking to make a meaningful investment into. I only started studying this company in the last few months, and I'm really impressed with, like I said, not only the massive penetration that they have in the social media space, in the gaming business, in their native China; but also, they're investing in streaming video, they're investing in cloud computing, they're investing in digital payments. You put all that together, and I think they still have a massive opportunity ahead of them.

Danny Vena owns shares of ATVI, FB, PYPL, and TTWO. Dylan Lewis owns shares of FB and PYPL. The Motley Fool owns shares of and recommends ATVI, FB, PYPL, TTWO, and Tencent Holdings. The Motley Fool recommends EA. 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

*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.