Tencent ETF

Tencent is a Tech ETF and a Venture Fund combined, not just a super app

Alvin Chow
Alvin Chow

One of our course graduates shared Not Boring’s fantastic post about Tencent that gave me a different perspective of the company.

I have always viewed Tencent as a powerful platform (WeChat) which connects majority of the Chinese together. Not merely in China, but the entire Chinese diaspora globally. It is a phenomenal feat by itself.

My second impression is that Tencent is a gaming giant and it is a booming new space with the creation of professional gamers and e-sports competitions.

Personally, I was so intrigued by the cashless payment system and culture in China that I decided to book a flight to Shenzhen, signed up for a Chinese number, load up WeChat Pay through a Carousell user and experimented making payment with it.

I went through all the trouble to do it but you know what? I have not even used SGQR in Singapore. I find it funny myself.

When it comes to China tech, we often think about Alibaba and Tencent but less of Baidu – the BAT term is not valid anymore. Others like JD.com and Bytedance are hotter now. That said, the two big brothers remained.

I observed that Alibaba and Tencent often pit against each other and invest in competing companies or develop countering products. Examples are;

  • Alipay vs WeChat Pay,
  • Youku vs QQ Video, and
  • DingTalk vs WeChat Work.

In fact, this is very common among tech companies as they vie for market share. Often investing in another company would be the fastest way to move into a totally new domain.

And I think this is where Tencent stood out – according to Not Boring, Tencent had over 700 investments in various companies. That’s like being an ETF by itself! I don’t think any other big tech companies are as prolific as Tencent when it comes to investing.

Tencent has never been open about its investment portfolio and Not Boring was only able to compile 103 of them. However, some of these names are very impressive and very valuable now. I would like to make use of the list and recreate groupings according sectors so that you can see how diverse Tencent’s investments were.

By the way, Tencent has too many investments and the following isn’t a complete list.

Transportation

You might find it strange that I put transportation as the first group since it is not really linked to Tencent. I chose this because Tesla is all the rage now and Tencent has a stake in it!

  • Tesla (NASDAQ:TSLA) – Needs no introduction. The sexy electric cars that most people dream of having.
  • DiDi Chuxing – The Uber of China.
  • NIO (NYSE:NIO) – Chinese version of Tesla.
  • Gojek – Singaporeans should be familiar as they have entered the ride-hailing market to compete with Grab.
  • Ola – Competitor to Uber in India.
  • NavInfo (SZSE:002405) – Navigation technology including digital maps.
  • Lilium – Flying taxis are coming!

E-commerce

Traditionally a space conquered by Amazon and Alibaba, Tencent has since invested in their fiercest competitors.

  • Meituan Dianping (SEHK:3690) – Difficult to put a short description because they do a lot of things – from restaurant reviews to food delivery, from group buying to hotel bookings.
  • Sea Ltd (NYSE:SE) – Our best performing Singapore company in 2020! The parent company of Shoppee and Garena.
  • JD.com (NASDAQ:JD) – Second to Alibaba in terms of e-commerce market share in China.
  • Pinduoduo (NASDAQ:PDD) – Third in China e-commerce market share.
  • 58.com (NYSE:WUBA) – A marketplace for Consumers-to-Consumers transactions.
  • Flipkart – Number 1 e-commerce player in India by market share. Wal-Mart is the parent company and Amazon is the main competitor.
  • VIP Shop (NYSE:VIPS) – Selling brands’ excess inventory at discount prices.
  • Yonghui Superstores (SSE:601993) – Ranked 6th in the list of China’s top 100 chain stores based on combined offline and online sales figures.
  • Meili United Group – Fashion-focused e-commerce platform.
  • Koudai Gouwu – Mobile-focused shopping marketplace
  • Farfetch (NYSE:FTCH) – Online luxury fashion retail platform.
  • Udaan – A B2B trade platform designed specifically for small & medium businesses in India.
  • Leju (NYSE:LEJU) – Property listing portal in China.

Social Media

WeChat is probably the biggest social media in China.

But Tencent has not rest on its laurels and continued to invest in social media platforms to rival Facebook and Bytedance.

  • Snap (NYSE:SNAP) – Snapchat created a storm with its feature of making pictures and messages available for a short time before they become inaccessible to their recipients. Facebook and Instagram copied and introduced stories.
  • Reddit – A geek’s haven. You are not a geek if you don’t know what it is.

Games

It is often hard to know which game is going to be a blockbuster until you have publish it. And even so, a game’s popularity has a limited shelf life.

Tencent mitigates these risks by investing in the top game studios around the world. It can really be the king of games!

  • Riot Games – League of Legends.
  • Supercell – Clash of Clans, Clash Royale.
  • Epic Games – Fortnite.
  • Activision Blizzard (NASDAQ:ATVI) – World of Warcraft, Call of Duty.
  • NetMarble (KRX:251270) – South Korea’s largest mobile game developer.
  • Ubisoft (EPA:UBI) – Raving Rabbits. French video game company.
  • Krafton – PUBG. South Korean company.
  • Glu Mobile (NASDAQ:GLUU) – A variety of mobile games.
  • iDreamSky (SEHK:1119) – A variety of mobile games.
  • Paradox Interactive (FRA:ETA) – Swedish company that makes historically themed strategy video games.
  • Frontier Developments (LON:FDEV) – UK company. Elite series games.
  • Marvelous (TSE:7844) – Japanese company. Makes games for multi-platforms.
  • Ourpalm (SSE:300315) – A Variety of Chinese games.

Media and Entertainment

Tencent has also invested in music and movie studios and platforms.

  • Tencent Music (NYSE:TME) – Joint venture between Tencent and Spotify to offer music streaming service to the Chinese.
  • Universal Music Group – Touted as the biggest music company in the world.
  • Spotify (NYSE:SPOT) – The de facto music streaming platform.
  • China Literature (SEHK:772) – Online literature platform in China, allowing writers to published their work and get paid by readers.
  • Zhihu – Chinese version of Quora.
  • Skydance Media – Production company. Made movies such as Mission Impossible, Terminator and Star Trek.
  • Huayi Brothers (SZSE:300027) – Owns a film studio, a television production company, a talent agency, a record label, and a movie theater chain. Made Kung Fu Hustle.
  • Maoyan (SEHK:1896) – Online entertainment ticketing services, entertainment content services and advertising services.
  • Qutoutiao (NASDAQ:QTT) – Not related to Bytedance’s Toutiao. A mobile content aggregator.
  • Gaana – India’s largest commercial music streaming service.

Video Streaming

Streaming is the in-thing currently, it makes on-demand movies look ancient.

Many platforms have sprang up and Tencent was quick to invest in a handful of them in China.

  • Kuaishou – Competitor to Douyin.
  • Huya (NYSE:HUYA) – Game live streaming platform like Twitch.
  • Douyu (NASDAQ:DOYU) – Live streaming service but more for games. Similar to Twitch.
  • Bilibili (NASDAQ:BILI) – Video sharing themed around animation, comic, and games.
  • MX Player – Indian video streaming and video on demand platform.

Finance

WeChat Pay is a phenomenal success by itself and it is only natural that Tencent would want to ride on the momentum to move into other areas of finance – credit, investments and banking services.

  • WeBank – Tencent’s answer to Ant Financial’s MyBank, competing in the digital banking space.
  • China International Capital (SEHK:3908) – CICC is a leading investment bank in China.
  • Futu Holdings (NASDAQ:FUTU) – Online broker and wealth management platform.
  • Nubank – Brazilian neobank and the largest Fintech in Latin America.
  • Shanda – An investment firm. It invests in public markets, real estate and venture capital, focusing on companies in the fields of healthcare, financial services, media, and technology.
  • Yixin (SEHK:2858) – An online automobile finance transaction platform.
  • Afterpay (ASX:APT) – Buy now, pay later credit facility in Australia
  • N26 – Neobank in Germany.
  • Airwallex – Cross-border transactions.
  • Kakao Bank – South Korean mobile-only bank.
  • Khatabook – Similar to QuickBooks.

Real Estate

I was surprised that Tencent is interested in the real estate space too.

  • Beike Zhaofang (NYSE:BEKE) – A property listing portal. Similar to PropertyGuru.
  • Wanda Commercial – China’s leading commercial property investor and operator.
  • Lianjia – Chinese real-estate brokerage company.

The Tencent Tech ETF

Tencent has so many investments under its wings, it’s starting to seem as though buying Tencent is like investing in an ETF.

No. Since many of its investments are in private companies, it’s both a venture capital fund and an ETF to be more exact. (an ETF usually only invests in publicly listed companies.)

It rare to find a CEO who can run their core business operations well (WeChat ecosystem) and be a great capital allocator (investor) at the same time. Warren Buffett would very much approve Pony Ma as a great CEO.

In fact, Tencent has done better than those who have focused on investing alone,

“52 are unicorns, private companies worth $1 billion, which places it in the number two spot right behind #1 Sequoia Capital, which has invested in 109 according to the Hurun Global Unicorn Index, and ahead of third place SoftBank, which has 51. (In a January speech, Lau said that that company has 160 companies in its portfolio worth more than $1 billion, which would put it #1.)”

Not Boring

I have seen many CEOs try their hand at the investor role and flopped.

Hence, I tend to prefer CEOs who return excess money to shareholders, if they are not reinvesting back into their core businesses. The chance of them diworsifying investments in non-core areas, is usually very high.

I believe that Tencent’s decision to invest was driven by its survival instinct. The management was probably afraid that other companies may disrupt them (especially in games) or that they may miss out on some of the important developments beyond their core competencies.

Investing in other companies would therefore mitigate the risk of irrelevancy but it could also fail.

Tencent took a bold bet to invest massively. It worked out very well for them. And they are reaping the rewards now.

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
Read These Next

2 thoughts on “Tencent is a Tech ETF and a Venture Fund combined, not just a super app”

  1. No doubt it is a great company, do you personally invest Tencent? Taking minimum purchase of 1000 units and share price at HKD 550 (~SGD10k), it is quite a big sum of money for investor especially beginner.

    What are the strategies or methods can a retail investor do to slowly accumulate Tencent shares?

    Reply

Leave a Comment