Why is Tencent so Cheap?

How the regulatory headwinds are helpful barriers to entry.

Andrew Willis 15 July, 2022 | 4:48AM
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Andrew Willis: Tencent (TCEHY)’s stock has been declining for about a year and a half now – and this trend has continued with a recent drop in the company’s advertising business in Q1, due to regulations imposed on advertisers in China’s education and real estate sectors.

From government policies regarding promotions, privacy and data concerns to anti-trust regulations, Tencent has been navigating difficult terrain – but as senior equity analyst Ivan Su notes, compliance costs can become significant barriers to entry for competitors.

Tencent has the resources and a unique collection of marketing channels to try out business models to eventually reach compliance. And their portfolio of games may only be just the beginning. We see a tremendous amount of untapped potential in messaging app Wechat – where compliance means monetization of a billion-plus user base.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Tencent Holdings Ltd ADR48.71 USD-0.43Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @AndrewWillisCDN.

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