Please ensure Javascript is enabled for purposes of website accessibility

Why Tencent Is a Lot Like Berkshire Hathaway

By Jeremy Bowman – Sep 5, 2021 at 8:26PM

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

Tencent's nearly $250 billion investment portfolio gives investors exposure that only companies like Berskhire can match.

Warren Buffett's  Berkshire Hathaway (BRK.A -0.32%) (BRK.B -0.33%) needs little introduction, but if you're looking for the next Berkshire, you might be surprised to find it in China. Tech giant Tencent (TCEHY 3.12%) has an impressive portfolio of companies that's been valued at as much as $250 billion, and it also owns the super-app WeChat, whose competitive advantages are manifest.

In this segment of Backstage Pass, recorded on Aug. 23, Fool contributor Jeremy Bowman explains some of the surprising similarities between the two companies.

10 stocks we like better than Tencent Holdings
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Tencent Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 9, 2021

 

Jeremy Bowman: So Tencent is the parent of WeChat. That's most of their business. WeChat is basically a super-app that I think does pretty much all the things we might use in apps like Facebook, or YouTube, or Uber for here. That's all rolled into one app with WeChat. It's really a huge business for Tencent. It pairs with other companies. Tencent, you have to think of it in two ways. It's first the WeChat, and then secondly, they have a really prolific investment portfolio. I think you can almost compare them to something like Berkshire Hathaway in some ways.

The company has invested in a lot of major Chinese stocks, like Meituan, Dianping, which is a food delivery leader; Pinduoduo, which is a social commerce company that's starting to challenge some of the leaders in e-commerce like Alibaba and JD. They also have a stake in Snapchat parent Snap, as well as Sea Limited, a large Southeast Asian tech company. And I think JD and Nio or a couple of others are the big ones. So you pair that with WeChat, which gives an entree into some of those -- you can use that for food delivery, for shopping, and all these other things. So that's made a pretty strong business for them. They are actually the most valuable Chinese tech company right now.

Looking at second-quarter results, I think a pretty solid quarter for growth. We have, their revenue was up 20% to $24 billion. WeChat members grew 9 million from the previous quarter to 1.251 billion. They also own QQ, which is another popular mobile app, though WeChat has slowly been cannibalizing that. QQ's user base declined from 606 million to 591 million. That's been a pattern in recent quarters.

The company also has some cloud-based productivity businesses that you might think of similar to Zoom or Google Docs. That's more of a secondary business for them. The revenue mix comes from more or less 20% to 30% from each of gaming, fintech, and business services, advertising, and social media. Profitability is great, as it is for a lot of these large tech companies. They're at 25% profit margin in the second quarter, and earnings per share was up 12% to 54 cents.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Alibaba Group Holding, Facebook, JD.com, Sea Limited, and Snap. The Motley Fool owns shares of and recommends Alibaba Group Holding, Berkshire Hathaway (B shares), Facebook, JD.com, Meituan, Nio, Sea Limited, and Tencent Holdings. The Motley Fool recommends Uber Technologies and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

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

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

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.