apple It is one of the best companies ever. Since its inception, it has been a leader in the technology sector, and its products have helped drive its stock price up, making it one of the world’s largest companies by market capitalization.
Despite its large scale, Apple continues to grow. However, Apple’s scale is suppressing its growth rate. If the recent growth trend continues, it is unlikely that Apple’s stock price performance in the next ten years will be on par with the past.
Fortunately, investors can consider many other leading technology stocks, which have better prospects than Apple.One of them is Tencent Holdings (OTC: TCEHY).
The rise of a large technology company
Tencent is the number one player in many business areas in China: online games, mobile messaging, online videos, online payments and music, to name a few.Its flagship social media application WeChat has 1.2 billion monthly active users (MAU), second only to Facebook, Of which there are 2.7 billion MAUs.
It does not start with a win-win business. It was originally a single-product company focused on instant messaging software QQ in the late 1990s and early 2000s. The product has been well received by users, making it the de facto instant messaging software in China in the PC era. Tencent subsequently continued to provide other services-online games, entertainment, news, etc.-to the satisfaction of hundreds of millions of users. The WeChat “WeChat” in its crown came late, and in many ways is an improved version of QQ tailored for the mobile era.
Why Tencent is so successful
Among all the factors that contributed to Tencent’s success, two stood out: a large user base and a diversified business model.
The former is the result of Tencent’s leadership in social messaging tools. Due to the strong network effect, social messaging tools are very popular among Chinese users-with each additional user, its network will be more valuable to all existing users.
Unlike its counterparts like WhatsApp, which are still mainly messaging apps, WeChat is further developed by offering a variety of other services, including e-commerce, online food ordering, payments, blogs, games, and music. These additional services not only make WeChat extremely sticky among users, but also become a new source of revenue for Tencent.
result? Diversified and profitable technology group. Between 2004 (the year of the initial public offering) and 2019, Tencent’s revenue and net profit grew at a compound annual growth rate (CAGR) of 47% and 43%, respectively. It seems that its business model runs the risk of making it cookie-cutter and inaction, but Tencent has not done anything alone, but has established extensive partnerships (including holdings) with other companies in the region including e-commerce and online food Distribution. These relationships help strengthen its ecosystem.
Power you might overlook
Many investors do not know that Tencent may be one of the best (if not the best) capital allocators in the world.according to South China Morning Post In the ten years ending in 2019, Tencent has invested in about 700 companies, many of which have gone public or become unicorns, and these companies are valued at more than $1 billion.
Some of its well-known investments include Pinduoduo, Meituan, JD, Sea co., ltd., EPIC games and Didi. Tencent owns more than 10% of each of these companies.It also owns minority stakes in leading companies like this Tesla, Capture, Spotifywith Uber. As of June 30, the value of these investments was approximately $77 billion.
These companies are leaders in their respective fields, and Tencent will benefit from them as they continue to develop. With cash flow every year, Tencent is likely to continue to invest in other companies to create value for its shareholders.
However, there is a risk that future investments may not succeed. Therefore, investors should be wary of potential capital allocation errors, especially when it is involved in industries far beyond its core capabilities.
Tencent as a long-term investment
Tencent is a rare combination of a great commercial operator and a successful capital allocator.
I think Tencent’s future is more brilliant than in the past. It has great potential to develop its existing businesses in advertising, financial technology and healthcare, and it can also expand its young, enterprise-oriented businesses, such as cloud computing.
With a market value of approximately US$745 billion, Tencent is already a huge company. But ten years from now, it may be more valuable. Thanks to its smaller size and mature capital allocation strategy, it has a chance to beat Apple.