In all, Tencent's investment portfolio totaled more than $224 billion as of June 30. Tencent's most successful non-China investment is perhaps its roughly 25% stake in Sea Limited, which appears to be taking market share from Alibaba-owned Lazada in Southeast Asia - though both Southeast Asian e-commerce companies are growing nicely. However, Tencent's is much larger, with stakes in significant non-Chinese companies such as Tesla, Snap, Activision Blizzard, and Universal Music Group. 2: Tencent has better non-China assets and investmentsĪside from each company's core business, both companies also invest their profits into outside businesses, and both now have impressive investment portfolios. That could leave it more vulnerable to competition, now that ascendant e-commerce players such as JD.com (NASDAQ: JD), Pinduoduo (NASDAQ: PDD), and Meituan (OTC: MPNGF) will have access to the same vendors. In April, China's regulator fined Alibaba $2.8 billion for forcing vendors into exclusivity arrangements, and Alibaba will now stop the practice. In fact, recent new rules may already affect Alibaba's future results. With a huge concentration in e-commerce, Alibaba's business is more vulnerable to any one particular regulation than Tencent might be amid this crackdown. They'll probably be less profitable than the core online advertising business. While it's true that these segments across direct sales, wholesale, grocery, international e-commerce, and logistics grew at a faster rate than core customer management, it's still unclear what kind of profit margins those segments will have at maturity. The remaining 48% of Alibaba's e-commerce revenue is loss-making, generating an EBITA loss of 14 billion yuan for Alibaba last quarter. And while Alibaba's overall revenue growth was 34% last quarter, the profitable customer management segment grew only 14%.
More concerning, only 39% of revenue is from the "core" customer management segment, which is essentially highly profitable online advertising. Although there is a lot of diversity within that general e-commerce basket, the vast majority of Alibaba's business still comes from selling items to people over the internet. Last quarter, 87% of Alibaba's revenue came from its e-commerce empire. That's because Alibaba gets a much greater proportion of its overall revenue from e-commerce. So while recent regulatory actions against video game addiction among youths rattled investors this summer, any one regulation is less likely to hurt Tencent's overall business when compared with Alibaba. That's nice diversity, and while Tencent doesn't break down the profitability of each segment, global peers in video games, social media, and digital payments tend to be highly profitable.
The former has a fairly even distribution of revenue last quarter, Tencent received 31% of revenue from video games, 30% of revenue from its fintech and cloud services segment, 21% from social networks services and subscriptions, and 17% from online advertising. This is one of the fundamental reasons to like Tencent over Alibaba. In such an uncertain regulatory environment, a company's diversity and resilience is paramount. 1: Diversity of revenue and profit streams Count Warren Buffett's longtime business partner, Charlie Munger, as one of them, as Munger increased his massive bet on e-commerce leader Alibaba (NYSE: BABA) over the summer.Īlibaba has been a popular way for American investors to gain exposure to Chinese tech, but I'd argue Alibaba rival Tencent (OTC: TCEHY) is actually the better way to play a Chinese rebound, for the following reasons. Now that these stocks are deeply discounted, some may view the sell-off as a golden buying opportunity.
#Why is tencent video player not showing video cracked#
Yet this summer, China's tech darlings fell hard - as in more than 50% hard - as the Communist Party's regulatory regime cracked down on the sector in a big way. The Chinese internet giants have been incredible wealth-creators over the past 20 years.
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