KrASIA Weekly: Tencent and its declining margins

2018-10-14

Hi there, it’s Robin.

Tencent Holdings – 2017’s market darling – has seen its share price falling sharply since its peak in January 2018. Having risen 45,180% in 14 years according to a Bloomberg article, this Chinese tech conglomerate is now hailed as the tech company that lost the largest amount in terms of market capitalization this year.

This might not be all that surprising if you looked at the series of events that have happened in the course of the last few months.

After all, the catchphrase “the higher you climb, the harder the fall” matches Tencent very well – it has had a great story since it went public until Jan 2018, defying all the skeptics. The worrying trend probably began when Tencent posted its first profit drop amidst China’s freeze in the issue of the gaming license.

This development is also coming at a time when the escalating Sino-US trade war is affecting the stock market, which probably worsens the problem that Tencent is already in.

Its recent restructuring plan, for instance, indicates that this social networking giant hasn’t been actively seeking other avenues, especially in the area of cloud computing. This could, in part, be due to the lack of guided leadership – Tencent has no chief technology officer for the past 4 years.

This is a fresh reminder of the perils of resting on one’s laurels. The other end of the spectrum will then be that there is really no boundary for internet companies – you expand into other verticals and build your ecosystem whenever as long as there is sufficient funding and it makes business sense. HK-listed Meituan-Dianping could be a classic example of that, moving from a simple Groupon & Yelp-like mashup to the food delivery space and hotel booking industry.

Apparently, this might be what Grab thinks as well. We have seen how Grab Ventures was launched, with the aim of welcoming on board startups that Grab believes will make sense to add value to its ecosystem. Microsoft is its new investor and will be providing the necessary technology advantage to build Grab’s technology via a partnership.

Archrival Go-Jek could be another fine example. Consumers should be thought of as a person, rather than be segmented according to the type of service. At least, this is what Go-Jek’s founder & CEO Nadiem Makarim thinks. And that was how his company utilised technology and data to learn and explore ways to solve the daily grinds of everyday life. It is not just a transportation company and is also servicing up to 19 other verticals in Indonesia.

One example could be the recent launch of its mobile voucher marketplace Go-Deals. This latest vertical provides exclusive deals for people in the age group of 18-35, where discount vouchers can be used at 800 retailers.

And the goal now is to try to replicate that across Southeast Asia. While it remains to be seen if that would work, the need to constantly seek for growth has become a necessity in the dynamic and competitive tech business world.

Read on to find out more interesting stories from last week, and feel free to tip us if you have news clue or you just want to talk with us, email us at hello@kr-asia.com and we are looking forward to hearing from you.

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