Tencent plugs holes, and boosts profits, with 163 new investments

With more that 600 companies in its portfolio, Chinese internet giant Tencent Holdings has become one of the most active investors in the technology world. The strategy has also provided Tencent with a steady profit stream at a time when its core businesses of social media and video games face intense competition and increased government scrutiny.

As the tech rout spread throughout the world last year the Shenzhen-based company accelerated its investment pace by putting money into more than 163 deals globally compared to 143 in 2017, according to Chinese research firm IT Juzi, whose data is widely cited by both local and overseas media.

While they ranged from live-streaming platforms and online education to e-commerce players and property service providers, Tencent had a priority – a quarter of the deals were in culture and entertainment, the consumer-facing business which can make full use of the 1 billion users on its dominant messaging app WeChat. Another priority was enterprise services, a reflection of the company’s latest strategy to shift focus to the industrial internet. Last year Tencent's investments also expanded geographically, from Southeast Asia and China, to the US, UK, New Zealand, Germany, Brazil and Nigeria.

“Tencent invests in almost every area,” said William Li, senior analyst at Beijing-based data research company Context Lab. “That is how it can make sure it is not constantly losing ground to the fierce competition in China’s tech industry. Besides, varied investments are a good way to diversify risk.”

The company’s latest earnings results show that Tencent’s investment strategy has helped offset slower growth in its core gaming business, which has faced uncertainties due to tighter government regulation. In the third quarter, Tencent said its profit increased 30 per cent year on year mainly due to higher gains generated from investment-related items. The net gain of 8.8 billion yuan (US$1.3 billion), mainly from the increase in certain investment valuations, including Meituan Dianping which listed in Hong Kong in September, accounted for 38 per cent of total profit for the quarter. In 2016 Tencent made 7 per cent of its profit from investments and last year that figure was 22 per cent. Hong Kong-listed Tencent will release its 2018 results on March 21.

However, some Tencent-backed companies that went public last year, like e-commerce player Pinduoduo, have seen their share price slump after investors became sceptical of their profit-generating ability.