For a long time, people have used stock investing to grow their money to prepare for major expenses such as retirement or sending their children to college.
While buying a stock online is now as easy as placing an order for lunch on Uber Eats, buying the right stock is much trickier. Still, done correctly, a small investment of say $2000 can grow into a huge sum over a period of time. So to get started, it's best for beginners to stick to a well-proven method: Buy good companies with bright prospects and hold them over the long term.
One company that can be a good start for new investors is Chinese technology giant Tencent (TCEHY 0.80%).
Image source: Getty Images.
Tencent has an extraordinary track record of execution
Tencent is one of this generation's most underrated and remarkable growth stocks.
Listed in 2004, Tencent grew revenue and net profit by more than 500-fold by 2021. What started as a small messaging service company called QQ has become a conglomerate covering gaming, entertainment, fintech, cloud computing, and more.
While many factors contributed to Tencent's success, one of the most important aspects is the company's ability to choose the right strategies and execute them well over time. For example, Tencent decided to expand into new businesses even though it was already making good money from QQ in the early years. That strategic choice led to a series of world-class products that consumers use today, including WeChat, Tencent online games, iQIYI, and Tencent Music, to name a few.
Although having the right strategies is essential, it is more important for a company to execute those strategies. Fortunately, Tencent has proven to be good at doing that. For instance, it initially knew nothing about online games, but it persevered and built a world-class gaming company over the years. The company smartly leveraged its user base in QQ to distribute its online games, which helped it scale the business rapidly and cost-effectively.
Tencent would repeat its earlier QQ strategy when growing WeChat, its social media networking and communication service. Tencent first grew WeChat to become the de facto mobile messaging app in China. Then it added new services and products to enhance WeChat's ecosystem. Today, WeChat is probably the most comprehensive digital app in China, covering all kinds of services like payments, online ordering, public transport, banking, online games, entertainment, and e-commerce.
Tencent's patience and meticulous execution over the years led it to build a fast-growing and yet highly profitable company. And this trend could continue for a while (more on that in the next section).
OTC: TCEHY
Key Data Points
Tencent can still dance
Tencent's success puts it in league with the biggest companies in the world. For perspective, it generated 555 billion yuan ($79.6 billion) in revenue and 189 billion yuan ($27.1 billion) in net profit in 2022. Despite its size, there are reasons to think that the tech company can continue to grow for many years.
For one, Tencent can continue increasing the monetization of its massive user base of 1.3 billion on WeChat. It can grow its targeted advertising or sell value-added services like gaming and fintech entertainment to increase its revenue. The digital company can continue expanding its product and service catalog, adding new income streams over time.
On top of that, Tencent is also quietly building its enterprise business. This segment offers services like cloud computing, artificial intelligence, and Internet of Things that help companies leverage the latest technology to grow their business.
And if Tencent uses up all its growth opportunities, it can still grow shareholder value via external investments. For the uninitiated, the company owns a portfolio of companies ranging from public companies like Pinduoduo and Sea Limited to private companies like Epic Games. These investments stood at 820 billion yuan ($118 billion) in 2022 and could grow in value over time.
In other words, with its twin engine of internal growth and external investments, Tencent will likely remain busy for a long time.
What it means for investors
Tencent has delivered solid performance for nearly two decades and has good ongoing growth prospects.
While no investment is entirely risk-free, Tencent's strong position in China's social media networking and extensive reach across the Chinese digital ecosystem put it in a privileged position to keep its economic machine going for many years.
Investors can consider initiating a position and adding to it over time as their conviction grows; $2,000 is a nice number to start with. If it works, such a position can grow massively over time.
