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Tencent Holdings Ltd ADR TCEHY Stock Quote

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Morningstar‘s Stock Analysis TCEHY

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Is it the right time to buy or sell?

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Tencent Reports a Turnaround in Earnings; Video Accounts Growing Rapidly; FVE Unchanged at HKD 741

Ivan Su Senior Equity Analyst

Analyst Note

| Ivan Su |

We maintain our fair value estimate of HKD 741 for wide-moat Tencent after it reported earnings for the third quarter of 2022. Tencent delivered an above-expectation bottom line in a quarter marred by macroeconomic challenges. Revenue was down 2% year over year, but adjusted net profit grew 2%, marking a turnaround from four consecutive quarters of declines. While the firm’s cost reduction efforts were the main drivers behind the year-over-year growth in earnings, we see revenue opportunities in areas such as video accounts, international games, and enterprise software. We view Tencent shares as very undervalued, trading at a 60% discount to our fair value estimate. We believe the current market valuation of 13 times 2023 core earnings, as at Nov. 17, 2022, and the tepid reaction to these results indicate that the market underestimates the longer-term revenue contribution from video accounts and the potential for more operating leverage as Tencent cements a more efficient cost structure.

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Key Statistics TCEHY

Company Profile TCEHY

Business Description

Tencent is arguably the most influential internet firm in China as one can hardly go by a day without using its products. Tencent is the world's largest video game vendor and owns the world's top-grossing mobile game--Honor of Kings. Tencent also runs China's largest social media super app--WeChat. The app is now part of the fabric of life for Chinese people who use it to chat, shop, watch videos, play games, order food and taxis, and more. Equally as impressive as its own portfolio, Tencent is also among the world's largest venture capital and investment corporations. The firm is now one of the largest shareholders in leading tech companies like Meituan, JD, DiDi, Snap, PDD, Kuaishou, Epic Games, and more.

No. 33 Haitian 2nd Road, Tencent Binhai Towers
Shenzhen, 518054, China, People's Republic of
T +86 75586013388
Industry Internet Content & Information
Most Recent Earnings Sep 30, 2022
Fiscal Year End Dec 31, 2022
Employees 108,836

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