Tencent 4Q result really that bad ??

Tencent announced its 4Q result this Wednesday, after market closed.   Company president, Martin Liu, said earnings growth would be “certain” to slow. The news trigger a sale off from investors.  Its share price dropped over 10% the next day in Hong Kong, the largest fall in almost two years.

Tencent’s fall also affect its major shareholder, South Africa’s Naspers. which owns a 30 percent stake.  Naspers’ share price dropped 4.4% on Thursday and another 3.12% on Friday, becoming the biggest percentage loser among Johannesburg’s Top-40 index of blue chips .

But is Tencent’s result really that bad ??  The company posted a fourth-quarter profit increase of 46 per cent, which is generally inline with investors’ expectation. (Its net profit is Rmb 2.2 billion, compared with Rmb 2.24 billion average estimate of nine analysts compiled by Bloomberg.)  What really worried investor is its president’s remark of “slower growth”.

The company plans to invest into a lot of new businesses this year, which will not produce return in short terms.  They are microblog, e-commerce, search, and online security.   For people who has been pay close attention to Tencent’s development over the years, this is not a surprise.  The company used to branch out into new business regularly, using its huge QQ users as leverage.   Online games was only a tiny portion of its business 4 years ago, and now, it accounted for 50% of its revenue.

However, not all of its initiative resulted in a success.  In such a case, it will generally let the new business line be and maybe try again later if opportunity arise.   e-commerce and search are something Tencent has been trying again and again over the years.  However, Alibaba’s Taobao is too strong a rival for Tencent’s Paipai  and Baidu is a much preferred search engine than Tencent’s Soso.

Last year’s e-commerce boom in China has benefited benefit both Baidu andTaobao immensely.  And that is why Tencent want to make an inroad into both this year, again.  Sina Weibo’s success has also triggered Tencent to try its own microblog service harder.  And last year’s fight with Qihoo 360 made it want to enter the field of online security.  But the problem is: obviously, all the four new business lines have strong incumbent players. It will be a tough battle for Tencent to win.

Actually, there is a new sector that Tencent has significant advantage and could be Tencent’s next revenue driver – the mobile internet.  According to CNNIC, the total number of mobile Internet users in China increased by 29.7% to 302.7 million at the end of 2010, representing 66.2% of the Internet user base.  Tencent’s mobile QQ is the most popular mobile application in China, followed by UCweb, a mobile web browser offered by Guangzhou based UC Mobile Ltd. iPhone-like mobile revolution has yet to happen in China, as smartphone penetration is still low and high speed mobile internet is still too expensive for mainstream citizen.  But when it happens, Tencent will be the first one to benefit.