Hong Kong — More bad news for Tencent: the Chinese internet giant has lost its spot as one of the world’s 10 biggest companies.
After shedding more than $200bn in market value this year, more than
any other company worldwide, Tencent has been replaced by Exxon Mobil in
the top of the rankings based on market capitalisation.
When its share price hit a record high in January, the Shenzhen-based
company was in the top five along with Apple, Alphabet, Microsoft and
Amazon.com.
By the end of January 2018, Tencent — which is 31% owned by
JSE-listed Naspers — had returned more than 67,000% from its initial
public offering.
But it turned south this year on a run of bad news including a rare
drop in profit and a regulatory crackdown on gaming in China.
Tencent has tumbled nearly 40% in Hong Kong since January 23, and
fell for a ninth straight day on Wednesday, on track for its worst run
since its 2004 listing. It was down 0.9% at 1.42pm in Hong Kong.
Mitchell Green, Santa Barbara-based founding partner of Lead Edge
Capital which manages $1.5bn of assets, said the selloff could continue
as investors panic.
Tencent’s market cap is now $353bn, while Exxon Mobil’s is $365bn.
The stock has been mired in a downtrend for a record 259 calendar
days. It has never fared worse relative to global technology shares.
Fall of a giant
While Tencent’s hugely popular online games, WeChat messaging service
and budding finance business made it a favourite of institutional and
individual investors, sentiment has soured after the onslaught of bad
news.
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
$11bn 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’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 ($37.52) on Tuesday, its lowest close since July 2017.
One group is sticking with Tencent despite 2018’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. That compares with multiples closer to
20 when the shares bottomed after major declines in 2011 and 2008.
Bloomberg
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