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Tencent’s $220bn rout is breaking all kinds of records

Tencent has entered uncharted territory, its 38% drop from a closing high in January is now the deepest since Tencent’s 2004 listing in Hong Kong.

The $220 billion rout in shares of Tencent has entered uncharted territory.

Not only has the Chinese Internet giant lost more market value than any other company worldwide this year, its 38% drop from a closing high in January is now the deepest since Tencent’s 2004 listing in Hong Kong. The stock has been mired in a downtrend for a record 259 calendar days and on Tuesday matched its longest streak of consecutive losses after falling for an eighth session. It has never fared worse relative to global technology shares.

It’s a dramatic reversal for a stock that returned more than 67 000% from its initial public offering through January, by far the best performance among large-cap companies globally during that period. While Tencent’s hugely popular online games, WeChat messaging service and budding finance business made it a favourite of both institutional and individual investors, sentiment has soured after the company faced an onslaught of bad news this year.

The first blow came almost nine months ago, when global concerns over frothy tech valuations dragged down Tencent and many of its peers. In March, losses accelerated after Tencent warned of weaker margins and one of the company’s oldest shareholders said it was unloading a nearly $11 billion stake.

That was followed by a wave of selling from Chinese investors, Tencent’s first profit drop in at least a decade, and a regulatory bottleneck on game approvals in China. The stock, which commands the biggest weighting in MSCI Inc.’s global emerging markets index, has taken another beating in recent days amid worries about slowing Chinese growth and a weaker yuan. It fell 1.7% to HK$293.80 on Tuesday, its lowest close since July 2017.

One group that’s sticking with Tencent despite this year’s travails: sell-side analysts. All but one of the 49 forecasters tracked by Bloomberg has the equivalent of a buy rating on the stock, with the consensus 12-month price target implying a 52% rebound.

But given that those same analysts failed to predict the current selloff, investors may want to think twice about buying now. Even after its slump, Tencent is trading at 25 times projected earnings over the next 12 months, according to data compiled by Bloomberg. That compares with multiples closer to 20 when the shares bottomed after major declines in 2011 and 2008.

© 2018 Bloomberg L.P

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A mere blip in the long upward march. Been invested since 2005 and heard stories of doom all along. I suppose they have to do something to sell advertising – nothing better than scare stories.

Tencent earnings been growing at < 28 % per year in last 5 years.

2018 will be much lower.
Margins are in slow decline
PE ratio at 29.

Only hope for this stock is more growth or margin increases (unlikely).

We await response from all “investment advisors ” aka salesmen on why they all keep on “advising ” us on Naspers and the glorius Tencent . I bet .. they will say ” Look at the long term history ” …” You should invest for long term “. Well ..in the long term I will be dead .

Had you not been invested in Naspers you would have had low single digit returns for the past decade. Broken clock is right twice a day. All the deep value legends will now pop up again. Expect oped’s from Piet Viljoen and John Biccard soon, telling all and sundry that they called this.

I called this

Go back and check the comments on this site for the past 3 years

Spark, three years from now you will regret not having bought at this bargain price.

@ thespark

I will take you word for it. However Tencent is still up 102% (USD return) over the past 3 years (250% over 5 years), even after the drop.

This is my point. We will need to see significantly more downside for you or the deep value guys comments to be valid that it would have been better to not invest in Tencent or Naspers.

Hold that thought

The ride isn’t over

Notwarren:

Single digit returns without Naspers??? Sure, 25% ten year return on naspers is excellent but I can name a dozen large, well managed, global companies with excellent returns in dollars over the past decade. For the most obvious consider just Apple, Amazon, Netflix, Google in well known tech range that from 20 to 50 % annual returns.. There are several less well known or obscure tech companies with even higher returns before you go to other sectors, especially biotech.

For me there are just far safer, better and better more transparently managed options than naspers.

No absolutely, my comment was more if you invested in a passive instrument that tracked the ALSI. I am really having a dig at the deep value guys that erupts in glee when there is a pullback in a share like Naspers/Tencent after having been bearish on it for a decade. Investor would still have been better off having been invested in Naspers than not, despite the recent pullback. All of the names you have listed would not be acceptable to the deep value crowd either.

I am grumpy because I listened to the experts who said Naspers was overvalued a decade ago…

Artificial propping up of any share is illegal and wrong and the SA investment community needs to take responsibility for this when it comes to Naspers. Whilst a demise in Naspers value is not good for the JSE or the South African investor, the real value of Tencent became apparent in October last year when the Tencent connections started selling off. Unfortunately the SA business’ cannot fill the gap and support the Naspers share price so this share will continue to lose ground until it reaches its real value.
In my opinion.

I do not think this is a fair comment at all.

(i) Most fund managers has been underweight Naspers because of the concentration risk or capping under reg 28 of their holdings so I do not see how the investment community propped upped Naspers.

(ii) Naspers value is also driven by Tencent. Tencent valuation is not driven by South African investors at all.

I run the risk of coming across as a bit of a Naspers fanboy, which I am not, but I do think we need to challenge incorrect observations.

Just for the record. Tencent share price today on the Hong Kong exchange is HK$286.60 which at today’s rate of exchange converts to R533. Naspers is currently trading at R2756 So perhaps it’s wise to take the profit whilst you can!

You do not get one Tencent share for every Naspers share you own. Easiest way is to rather look at it on a consolidated basis with both business market caps in USD.

Tencent has a market cap of USD348bn, Naspers owns 31% of Tencent so therefore its stake should be worth USD109bn. Naspers market cap is however USD83bn, so it still trades at a discount to the value of its investment in Tencent, and remember it still has other assets apart from Tencent.

ja…waiting for the R5000 on NPN…hehehehehe….you call a price give me the date and time…analysts have been doing the same planning the last 30 years and are still falling in the same trap..

At the close today, Naspers broke the R2700 barrier and closed at R26something…you still think it’s a safe bet?
Not in my opinion….stop playing silly buggers and kidding yourselves…..you’re all just delaying the pain by propping up this share….we survived Steinhoff, African Bank, the Zuptas…we’ll survive the truth about Naspers true value – let’s just get it over and done with.

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