China’s technology giant Tencent Holdings Ltd. (HK:0700) is pacing towards the artificial intelligence (AI) market, as competition in the gaming space is heating up and the fintech sector is drawing regulatory scrutiny. At Tencent’s annual meeting held in Shenzhen on January 29, CEO Pony Ma expressed concerns about Tencent’s games not doing as well as expected, with competitors flooding the space with market-leading titles.
Tencent Holdings is one of China’s most valuable tech companies, offering social networking, music, web portals, e-commerce, mobile games, and internet services. Tencent shares have lost over 30% in the past year.
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The gaming segment contributes roughly 30% of Tencent’s total revenues. Ma said that while the older renowned titles such as PUBG Mobile and Honor of Kings continued to add higher revenues, the newer titles are failing to meet expectations. Ma noted that Tencent’s gaming business faced significant challenges in 2023, as competitors aced up their games and left Tencent lagging.
Consequently, Ma said that Tencent will now focus on its AI offerings. Its generative AI chatbot Hunyuan, which was launched for corporates in November 2023, is catching up with the pace. Although Tencent’s AI offering is not the leader yet, Ma believes that it is not too far behind the first-tier companies. Ma said that Tencent will work on integrating its Hunyuan software into different business scenarios to boost efficiency instead of rapidly launching AI products.
Meanwhile, Ma is also confident about the company’s social network offering, WeChat. The company is striving to convert WeChat into a live video streaming e-commerce platform, similar to ByteDance’s Douyin. This turnaround could help Tencent drive significant revenues from live-streaming e-commerce services.
Ma Warns of Dangers Surrounding Fintech
Turning towards Tencent’s fintech division, during a staff meeting on Monday, Ma reportedly cautioned employees to give “safety” priority over “speed” when launching new products such as loans and insurance. Ma is particular about positioning Tencent as a partner and not as a challenger of banks. The founder and CEO urged employees to refrain from further expanding the payments business to avoid competing with banks.
Tencent is cautious of China’s stringent norms governing fintech companies. Last year, Tencent’s Tenpay and a dozen other firms were fined for violating consumer protection norms. Tencent wants to avoid any regulatory attention on its fintech services.
Is Tencent a Good Stock to Invest In?
With 11 Buys versus two Holds, 0700 stock commands a Strong Buy consensus rating on TipRanks. The Tencent Holdings share price target of HK$428.96 implies 56.7% upside potential from current levels.
