Author Topic: TCEHY - Tencent  (Read 18186 times)

Mondegreen

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Re: TCEHY - Tencent
« Reply #50 on: September 20, 2018, 09:52:49 AM »
A successful game is a great business, the gaming industry as a whole not so much.

Large up front investment for an uncertain result. All the revenue goes to a couple of games, low barriers to entry, often little subscription based revenue per user.

Steam is a great business


Jerry Capital

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Re: TCEHY - Tencent
« Reply #51 on: September 20, 2018, 10:09:26 AM »
All the top selling games are sequels. That's recurring revenue.

FIFA has a user base $EA
GTA has a user base $TTWO
COD has a user base $ATVI
« Last Edit: September 20, 2018, 10:11:01 AM by Jerry Capital »

bjakes00

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Re: TCEHY - Tencent
« Reply #52 on: September 20, 2018, 10:18:17 AM »
Naspers has confirmed that it will be spinning off Multichoice in H1 2019. They say in the press release it will be a JSE Top 40 company, so $4bn+ market cap.

My view is if this goes according to plan they may start spinning off a few more of their more mature SA businesses and unlocking value.

Worth getting into Tencent via Naspers over the next few months - the market still does not ascribe any value to the myriad businesses that Naspers has. That obviously depends on your view of Tencent though.

Info on the spin off: https://www.enhancingaccess.com/en-gb/home/
Also a Reddit list of the Tencent investment portfolio holdings: https://www.reddit.com/r/SecurityAnalysis/comments/9gsmkc/tencent_holdings_investment_portfolio_list_update/

Jerry Capital

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Re: TCEHY - Tencent
« Reply #53 on: September 20, 2018, 10:24:22 AM »
Same thesis as Yahoo and you would have been wiser to hold the main asset (Alibaba shares) than the discounted holding company.

Ludic Fallacy

bjakes00

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Re: TCEHY - Tencent
« Reply #54 on: September 20, 2018, 11:12:54 AM »
Except that I would argue Naspers are much more adept allocators of capital than Yahoo were and also wouldn’t be so sure that your argument holds true for the Altaba chapter of the story.

Mondegreen

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Re: TCEHY - Tencent
« Reply #55 on: September 20, 2018, 11:16:10 AM »
Hi Jerry Capital,

Apologies, I agree with you. I was merely objecting to the statement "Gaming is one of the best businesses ever."

Even for the franchise gaming companies, it's a much tougher business than Microsoft/Tobacco, gamers are much more fickle.

peterHK

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Re: TCEHY - Tencent
« Reply #56 on: September 20, 2018, 12:34:06 PM »
I have much less familiarity with Naspers' capital allocation ability, but my sense is they're okay and the big thing they've done is really Tencent. TBH I'd rather keep it simple and just own Tencent, who are themselves allocating capital to all sorts of things.

As for gaming. You have to remember Tencent has 800+mn MAU's that they can roll out games to. There is no other company on the planet with that type of ecosystem.
WeChat may be 10 years old, but I don't think people are getting tired of it, rather, things revolve around it in China. All my Asian friends use it for just about everything, and I live in Vancouver Canada so not even China. In Richmond (the sort of Asian suburb of Vancouver) there are even alipay and wepay abilities at stores. I think westerners really underestimate how much more powerful Tencent is relative to what we have here in North America.

The other thing is that all of Tencent's social media assets are undermonetized. The unit economics are worse (lower GM's than gaming), but the potential of that side of the business is very large.

Numerically, think of it this way: you're buying it today at 30x LTM earnings, but those earnings are growing 25% a year. That means you're buying it at 19x 2 years out earnings, and 15x 3 year out earnings. Even if growth slows to 15% in 3 years, 15x earnings is fair if not cheap given the market size in China and their stage of development, so the risk of permanent capital loss I think is fairly low.

The upside is if they trade say at 25x 3 year out earnings, those are very nice returns. Also recall that China is only 3% of the MSCI despite being 17% of world market cap, and their market is among the cheapest in the world, so there is also "flow related" upside on a macro level. You're also buying the yuan at a multi-year low.


cameronfen

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Re: TCEHY - Tencent
« Reply #57 on: September 21, 2018, 07:54:55 AM »
The economics of gaming in Asia are different than the US.  In the west a company like Activision, does end to end production.  They come up with the concept (usually), design the game, and they market the game.  In Asia the main thing tencent does is push the game to its 800 million MAU.  Some other company comes up with the concept and designs the game and then pays tencent to market it making it very difficult for tencent to be replaced with another company (as who has 800 million MAU). Tencent takes little risk designing the game.  A good illustration is tencent is responsible for marketing both pubg and fortnite despite the developers suing each other for copyright infringement.  Tencent wins no matter which game makes more money only the developer takes the risk.  That being said, tencent has a habit of buying ownership share in developers whose game it likes which is much more risky and less toll booth-y than just pushing it to its network. 

MrB

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Re: TCEHY - Tencent
« Reply #58 on: September 21, 2018, 08:14:59 AM »
I have much less familiarity with Naspers' capital allocation ability, but my sense is they're okay and the big thing they've done is really Tencent. TBH I'd rather keep it simple and just own Tencent, who are themselves allocating capital to all sorts of things.

As for gaming. You have to remember Tencent has 800+mn MAU's that they can roll out games to. There is no other company on the planet with that type of ecosystem.
WeChat may be 10 years old, but I don't think people are getting tired of it, rather, things revolve around it in China. All my Asian friends use it for just about everything, and I live in Vancouver Canada so not even China. In Richmond (the sort of Asian suburb of Vancouver) there are even alipay and wepay abilities at stores. I think westerners really underestimate how much more powerful Tencent is relative to what we have here in North America.

The other thing is that all of Tencent's social media assets are undermonetized. The unit economics are worse (lower GM's than gaming), but the potential of that side of the business is very large.

Numerically, think of it this way: you're buying it today at 30x LTM earnings, but those earnings are growing 25% a year. That means you're buying it at 19x 2 years out earnings, and 15x 3 year out earnings. Even if growth slows to 15% in 3 years, 15x earnings is fair if not cheap given the market size in China and their stage of development, so the risk of permanent capital loss I think is fairly low.

The upside is if they trade say at 25x 3 year out earnings, those are very nice returns. Also recall that China is only 3% of the MSCI despite being 17% of world market cap, and their market is among the cheapest in the world, so there is also "flow related" upside on a macro level. You're also buying the yuan at a multi-year low.

Interesting article in light of your comments on people underestimating the impact of Chinese companies on the rest of the world.
https://www.cnbc.com/2018/09/20/eric-schmidt-ex-google-ceo-predicts-internet-split-china.html

peterHK

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Re: TCEHY - Tencent
« Reply #59 on: September 21, 2018, 11:36:57 AM »

Interesting article in light of your comments on people underestimating the impact of Chinese companies on the rest of the world.
https://www.cnbc.com/2018/09/20/eric-schmidt-ex-google-ceo-predicts-internet-split-china.html

Interesting take; I could see that happening, but handicapping the odds are tough.

I think western people underestimate the impact of Tencent/Baba in just China alone, let alone the rest of the world. Unless you've actually been to China (which I have, though it was in 2010, so a lot has changed), or spent significant time digging into news about Tencent or Alibaba, I don't think you can really appreciate it. The equity research published on the names really doesn't quite get at how integral they really are to every day life in China. I think a lot of PM's, or the older generation also don't quite understand how integral things like Instagram is, or Facebook was (at least when I was in high school), so they don't have a great frame of reference about how 1) social media is a valuable business and 2) Tencent's social media business and ecosystem is orders of magnitude more valuable than Facebook's.