Features
10 Apr 19

Tencent update: restructuring, more investments, more competition

Tencent is a regular actor in articles about China, mobility and tech investments in general. It’s one of two Chinese star companies, alongside its eternal competitor, the e-commerce giant Alibaba.

The beginnings for Tencent are in communication and gaming. The best known product – and cash cow – is WeChat, but the group has gradually evolved from its origins into one of the biggest global investors in technology companies. They are sharing the playground with the likes of Google, Facebook and Apple.

Feeding the Empire

Tencent’s investment strategy is to acquire minority stakes in companies whose products can be bolted on the WeChat and WePay platforms. Mobility is the most common topic on the GlobalFleet platform, but is goes much further: payment services, ecommerce, social media, browsers, video, retail, cloud services, travel, productivity apps, mapping, banking and on-demand platforms.

As a result, Tencent has board seats in over 400 companies, about 100 of which are non-Chinese. The investment strategy is designed and executed by Martin Lau, Tencent’s president and former M&A banker at Goldman Sachs.

The consenting victim

Any unicorn knows that, if they want to become successful in accessing China’s billion consumer market, the gates are guarded by Tencent and Alibaba; this is why most tech companies won’t think twice when Tencent knocks on the door.

The company’s overwhelming power has some positives: very efficient management support, funding, collaboration opportunities – it can accelerate any company from medium-sized to really big. Other companies will reach out to Tencent to activate expansion; Tesla’s new factory in Shanghai would have significantly more difficult to build without the help of its 4th biggest shareholder.

Following China’s strategy

Tencent has executed a major restructuring in 2018, making the company leaner, more focused on industrial internet and ready to face new competitors, such as ByteDance (the USD 75 billion video company that owns TikTok). In reality, Tencent is aligning closely with China’s strategy, the unnamed revamped version of “Made in China 2025”.

Tencent needs to please the Government that has halted, because of the potential impact on children’s health, the approval procedures of new games for several months in 2018, cutting deep (USD 180 billion) in Tencent’s value. Its new structure will increase the integration between the Chinese economy and advanced tech, big data and AI.

ROI

In the meanwhile, Tencent’s investments are starting to pay off; the current value of its portfolio is estimated to exceed USD 70 billion. Does it mean that Tencent is no longer focused on its core activity, gaming? Not according to Lau: I personally think that if we want to control everything and want to do everything ourselves, this is not a dream. This is a delusion.”

Authored by: Yves Helven