Key insights
- The article suggests Tencent is an attractive investment for those willing to accept Chinese regulatory and political risk. It cites Tencent's dominant position in China's consumer app market, its investments in AI and cloud, and its large gaming portfolio. The author notes its attractive valuation and potential upside from AI and cloud acceleration. While acknowledging risks, the author sees Tencent as a high-quality business with a strong moat.
If you don't invest in China, that's fine, can't really argue with that stance given the regulatory and political risk.
For those who are willing to ignore that (rightly or wrongly) Tencent is pretty attractive right now. It's arguably the highest quality business in China and the most important consumer app...
WeChat has over a billion users for its super app and is much more ingrained in life than any comparable app in the US or Europe, they have a cloud business (that's OK), are investing heavily into AI, are the largest gaming company in the world directly and through minority investments, and have a diversified investment portfolio.
30% profit margins trading at 15x P/E and FCF multiples. Growing about 10% per year with cloud and AI acceleration as possible upside surprises. Otherwise, it has a huge moat in its super app and gaming portfolio.
You can also invest via Prosus which largely tracks Tencent but has other tech investments as well and trades at a discount. I personally believe it should always trade at a discount and they're not going to have another Tencent level investment (which was one of the best investments of all time). For US investors you also have to be wary of Prosus being classified as a PFIC which carries a lot of onerous tax filings.
This is all while the Chinese consumer has not been strong over the past few years.