Tencent's (OTC:TCEHY) stock surged nearly 1,000% over the past decade as WeChat became China's top messaging app and its video game business became the largest in the world. Those two pillars -- along with its ever-expanding ecosystem of new products, services, and investments -- made it a solid play on China's growth.

However, Tencent's stock dipped about 10% over the past two years as its growth decelerated. A nine-month freeze on new gaming approvals in China last year hurt its video game business, the economic slowdown in China caused companies to slash their ad budgets, and fresh competition from ByteDance's TikTok and Toutiao exacerbated the pain.

Tencent's strengths still outweigh its weaknesses, and analysts still expect its revenue to rise 29% next year. However, investors should be aware of three looming threats that could make it much tougher for Tencent to top those expectations.

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Image source: Getty Images.

1. ByteDance: The disruptive start-up

ByteDance was founded just seven years ago, but it now reaches 1.5 billion monthly active users (MAUs) and 700 million daily active users (DAUs) across all its platforms. Tencent, by comparison, had 1.15 billion MAUs on WeChat and 731 million MAUs on QQ last quarter. WeChat is still growing sequentially and annually, but QQ -- its older platform, which originated on PCs -- is shrinking.

ByteDance's top apps are TikTok and Toutitao. TikTok, known as Douyin in China, lets users create short musical videos and reaches over 500 million MAUs worldwide. Toutiao is a news app which aggregates "lighter" stories for younger and lower-income users.

ByteDance generated $7.2 billion in revenue in 2018, and it expects to more than double that figure to 120 billion yuan ($17 billion) this year. It also claimed 23% of China's digital ad revenue in the first half of 2019, according to research firm R3, putting it in second place behind Alibaba's (NYSE:BABA) 33% share. Tencent ranked fourth with a 14% share.

Tencent's ad revenue, which accounts for nearly a fifth of its top line, rose just 13% annually last quarter, marking a significant slowdown from previous quarters. It attributed that decline to a 28% drop in its media advertising revenue (on Tencent Video and other media platforms), which coincides with the ongoing growth of ByteDance's media platforms. Tencent is fighting back against ByteDance with its short video app Weishi and its news app Tencent News, but neither app has gained much ground so far.

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Image source: Getty Images.

2. Alibaba: Its cloud and fintech rival

Tencent launched its new fintech and business services unit -- which contained WeChat Pay, its wealth management services, and Tencent Cloud -- earlier this year. Revenue from that new growth engine rose 36% annually and accounted for 28% of Tencent's top line last quarter.

Tencent controlled 15% of China's cloud platform market at the beginning of 2019, according to Canalys, putting it in a distant second behind Alibaba's 47% share. Tencent's cloud revenue rose 80% annually to 4.7 billion yuan ($670 million) in the third quarter, but Alibaba's cloud revenue still grew 64% to 9.3 billion yuan ($1.3 billion) last quarter, which indicates that Tencent won't catch up anytime soon.

Tencent's WeChat Pay remains the top payment platform in China, and 86% of China's mobile users used the app last year, according to Ipsos. However, 71% of users used Alibaba-backed AliPay, and 64% regularly used both apps. Therefore, the growth of Alibaba's core marketplaces and its ongoing push into brick-and-mortar stores could still curb the growth of Tencent's fintech business. 

3. NetEase: The resilient video game competitor

NetEase (NASDAQ:NTES) is Tencent's biggest competitor in China's gaming market. Tencent's Honor of Kings and Game for Peace are currently the two highest-grossing iOS games in China, according to App Annie, but four of NetEase's games --Onmyoji, Immortal Conquest, and two entries in its flagship Fantasy Westward Journey franchise -- are also top-10 titles.

Tencent and NetEase both grew their gaming revenues 11% annually in their latest quarters. However, Tencent's gaming business only accounted for 29% of its top line, while NetEase's gaming unit generated 79% of its revenue. NetEase noted that it still has plenty of new games, including Cyber Hunter, Xuan Yuan Sword: Dragon Upon the Cloud, Bloom & Blade, and Activision Blizzard's (NASDAQ:ATVI) World of Warcraft Classic and Diablo Immortal -- to boost the unit's long-term growth.

That strong pipeline indicates that NetEase could gain more gamers if Tencent's flagship title Honor of Kings, which was launched four years ago, loses its momentum. NetEase's focus on gaming, its low exposure to online ads, its low valuation, and its higher yield all likely helped its stock outperform Tencent's by a wide margin this year.

The key takeaway

ByteDance, Alibaba, and NetEase don't directly compete with each other, but they all compete against Tencent. Therefore, investors should closely track their moves and see if they endanger Tencent's evolution as a diversified tech company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.