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Why Tencent Stock Dropped Today

By Joe Tenebruso - Apr 7, 2021 at 6:12PM

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The Chinese internet giant's biggest shareowner is trimming its position.

What happened

Tencent Holdings (TCEHY -0.23%) fell 7.5% Wednesday after its largest shareholder announced plans to sell as much as $15 billion worth of its stock. 

So what 

Prosus (PROSY -1.01%) said it will sell up to 191.89 million Tencent shares, or roughly 2% of the Chinese tech titan's total share count. The sale will take Prosus's massive stake in Tencent down from 30.9% to 28.9%.

A red keyboard button labeled sell.

Image source: Getty Images.

Prosus will use the cash it raises to diversify its portfolio. The Netherlands-based investment company promised to hold off selling any more of its Tencent shares for the next three years.

Now what

Prosus's parent company, Naspers (NPSNY -0.99%), made one of the most lucrative investments in corporate history. In 2001, it purchased a roughly 33% stake in Tencent for $32 million. The video game and financial services leader has grown into one of China's largest and most powerful companies in the two decades since then -- and the value of Naspers's stake has skyrocketed.

Yet Prosus, which was created by Naspers in 2019 to house its Tencent stake, has long traded at a significant discount to the value of its investment assets. The company's market capitalization stands at roughly $180 billion, according to Yahoo Finance!, while its stake in the $745 billion Tencent alone should theoretically be valued closer to $230 billion. Monetizing a portion of its holdings could help to remind investors of the value of its portfolio -- and potentially help to close this valuation gap.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$37.73 (-0.23%) $0.09
Naspers Stock Quote
$29.97 (-0.99%) $0.30
Prosus N.V. Stock Quote
Prosus N.V.
$12.79 (-1.01%) $0.13

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