Shares of Chinese tech giant Tencent fell by over 5% a day after posting an all-time high that boosted its valuation to almost $1 trillion for the first time.
Tencent shares went down by 5.48% to 724.50 Hong Kong dollars on Tuesday after hitting an all-time high of 767.5 Hong Kong dollars on Monday, which propelled the company's market capitalization to 7.35 trillion Hong Kong dollars or $949 billion.
All-time high
Monday's surge, which reached 11% at one point, appeared to be the result of bullish calls by investment banks, Citi and UBS. Citi published a research note that raised its target price for Tencent from 734 Hong Kong dollars to 876 Hong Kong dollars.
Additionally, UBS also increased its price target from 700 Hong Kong dollars to 830 Hong Kong dollars.
However, investors took profit on Tuesday, which pushed the share price down to as much as more than 6% earlier in the day.
Forecasts for Tencent
Tencent is expected to release its 2020 financial results for the fourth quarter and full year in March.
Refinitiv estimates show that analysts forecast Tencent's revenue to be at 131.83 billion yuan or around $20.36 billion for the final quarter, increasing by 24.6% year-on-year, while they expect net income to expand by almost 29% to 32.85 billion yuan.
Jeffries project Tencent's revenue from smartphone games to increase by 46% year-on-year to 38 billion yuan, boosted by new game releases.
In a research note, Macquarie analyst Han Joon Kim wrote: “We expect solid results in upcoming 4Q20, with strength in the game business overall.”
Growing WeChat business
Aside from gaming, Tencent has also been expanding other areas of its business including advertising, cloud computing and financial technology thru its WeChat Pay mobile payment system.
The tech giant has been particularly focusing investments on WeChat. Last week, the company announced that transactions on its WeChat Mini Programs grew by over 100% from 2019 to 2020 although it did not provide specific figures.
These Mini Programs, which refer to apps that can be used within WeChat without having to exit the messaging app, have been critical in the growth of WeChat users.
While monetization of the messaging app is still in its infant stages, analysts are optimistic about it in the long term.
Kim said: “We continue to find stronger emphasis on improving accessibility and functionality than monetization. We think lack of monetization of mini programs in 2021 is fine, as there is limited expectation of such embedded in earnings expectation anyways.”
“Rather, Tencent’s growing influence in on-line commerce activity will strengthen the stock’s long-term narrative and support its valuation multiple,” the Macquarie analyst added.
Last year, then-US President Donald Trump issued an executive order to ban WeChat from the country.
The order prohibited “any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States, with Tencent Holdings Ltd. (a.k.a. Téngxùn Kònggǔ Yǒuxiàn Gōngsī), Shenzhen, China, or any subsidiary of that entity, as identified by the Secretary of Commerce (Secretary) under section 1(c) of this order.”
However, the order was temporarily blocked by a US federal judge by issuing a preliminary injunction.
According to Judge Beeler, the plaintiffs, who are a group of US-based WeChat users, had shown “serious questions” in their claim that the executive order is a threat to their First Amendment rights.
In the preliminary injunction, Beeler wrote: “The plaintiffs’ evidence reflects that WeChat is effectively the only means of communication for many in the community, not only because China bans other apps, but also because Chinese speakers with limited English proficiency have no options other than WeChat.”
