Tag Archives: Baidu

Tencent (HKEx: 700) is in the headlines today after releasing quarterly earnings that showed its profit continues to slow, but what caught my eye was another unrelated report saying that China’s leading Internet company is planning a major reorganization. I’ll discuss details of the reports in a moment, but from a bigger picture perspective I have to suspect that this reorganization — if it’s really happening — may be the prelude to a much bigger story that could see Tenent split up into several different companies in the next couple of years, either through its own initiatives or possibly under government pressure depending on the outcome of an ongoing anti-monopoly case. If such a split-up were to happen, investors in the current Tencent could reap big rewards by finding themselves holding stock in a number of promising smaller independent companies, including ones built around its highly successful online games and social networking businesses. Let’s look at the reorganization news first, as clearly that’s the most interesting. According to Chinese media reports, which cite unnamed industry sources, the reorganization now underway would see Tencent divide itself into 6 major groups, including one focused on social networking and another on interactive entertainment. (English article). Long-time followers of Tencent will recall the company started out as an instant messaging specialist that went on to leverage its dominant QQ service to enter a wide array of other Internet spaces, from online games, to search, video and e-commerce. The company is now China’s largest Internet firm, with a market capitalization of nearly $52 billion. The only other Internet firms that even come close to that are online search leader Baidu (Nasdaq: BIDU), with a market cap of about $43 billion, and privately held e-commerce leader Alibaba, which is thought to be worth about $30 billion. Unlike Baidu and Alibaba, which are both focused around a single core area, Tencent’s businesses are quite diverse, which is why a break-up would make more sense to let each separate business are improve its focus and sink or swim by itself. Impetus for such a move may not only be coming from within Tencent, but could also soon come from the government, depending on the outcome of an important anti-monopoly case now being heard in Guangdong province. That case, which opened last month, saw another Internet firm accuse Tencent of using its monopoly status in instant messaging to unfairly dominate other areas as well. (previous post) If Tencent loses that case, which could easily happen, it will suddenly come under big pressure to remedy its monopoly status, which could make a break-up more likely. Meantime, I should also take a quick look at Tencent’s latest quarterly results, which showed that its first quarter net profit grew an anemic 2.8 percent, even as revenue grew a much bigger 52 percent. (results announcement) The weak profit growth despite the big rise in revenues probably reflects Tencent’s highly diversified nature, which includes big new revenues but also big new spending on new businesses. That’s all the more reason the company should break itself up and make each of its different units stand alone as separate entities. Such a move would benefit not only the company itself, but also would satisfy critics of its anti-competitive behavior.

Bottom line: Tencent’s reported reorganization could be a prelude to a break-up, which would benefit investors and appease critics of its anti-competitive behavior.

Related postings 相关文章:

◙ Tencent in Monopoly Spotlight; Baidu Next? 腾讯被诉垄断 下一个是百度吗？

◙ Disney, Tencent Tie-Up to Animate China 迪斯尼、腾讯合作研发动漫

◙ Tencent Shakes Up Search, Group Buying 腾讯搜搜、高朋网巨