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Home / Business / Trump’s WeChat assault threatens $280 billion Tencent rally

Trump’s WeChat assault threatens $280 billion Tencent rally

(Bloomberg)-Donald Trump’s WeChat ban is a famous Chinese innovation centered on the world’s largest mobile game and social media empire, threatening one of the most high-profile stock gains in 2020.

It is hard to overstate the importance of WeChat to Tencent Holdings Ltd. This is Tencent’s way to introduce games and other online content to one billion people in this way, and it injects trillions of dollars into Apple’s Walmart and other brands every year. WeChat’s influence is supported by Tencent’s US$280. ​​Since the bottom of Covid-19 on March 18, its market value has increased by US$1 billion-equivalent to a Samsung Electronics company and the fifth largest dollar increase in the world during that period.

Trump single-handedly stopped the cold of the rally. The President of the United States signed an executive order last week prohibiting American entities from trading with ByteDance Ltd.’s viral video platform TikTok and WeChat within 45 days. As investors struggled to deal with vague regulations, chaos and uncertainty flooded. Tencent fell by $66 billion two days ago.

The earnings released by executives on Wednesday will seek to reassure the market that it can withstand the White House campaign that has been surrounded by Huawei Technologies and dozens of promising Chinese. A US official clarified that the sanctions only concern the application, not its owner. But the general wording of Trump’s order-prohibiting “transactions” with Chinese companies-opened the door for the government to extend it beyond WeChat, which is known locally as WeChat.

Wedbush analyst Daniel Ives told Bloomberg TV: “For these companies, this is really a big blow to them.” Tencent’s stock was basically unchanged before this afternoon’s results. .

Why Tencent and WeChat are so important in China: QuickTake

WeChat operators have performed well in the short term: On average, analysts predict that revenue in the June quarter will increase by 27% and net income will increase by 13%. However, investors seem to be very divided on the fate of China’s second largest company. The company’s options-contracts that allow holders to buy and sell stocks at pre-agreed prices-imply that traders will increase their stock price by 5.7% after the earnings report, about four times the normal level.

Bloomberg data shows that as of Wednesday, the three most popular options include a call contract, which is expected to rise about 16% to 600 Hong Kong dollars by the end of September; a put contract indicates a 20% plunge. However, the ratio of put options, that is, the number of sold options traded divided by the number of contracts bought, is close to the lowest level since May, indicating that there are more optimistic sentiments than bearish investors.

The widening gap reflects the central role of WeChat in the Tencent empire and its huge influence in Trump’s crosshairs. The service started in 2011 when it was a clone of WhatsApp. It has been deeply rooted in the lives of Chinese people. For people who use chat, shop, watch videos, play games, flirt, order food and take taxis, this Service is essential. It created the concept of “all-in-one or super application” by embedding a streamlined version of the application or a small program-both Alibaba Group Holding Co., Ltd. and Facebook Inc. have adopted this model. Its success stems in part from the fact that China has banned global services such as WhatsApp, Twitter and Instagram, which has allowed WeChat and many other Chinese peer-to-peer devices to flourish in the alternative Internet sector.

Today, if this Chinese company is a mashup of Facebook, Netflix, WhatsApp, and Spotify, then WeChat is the backbone of smartphones and payments, closely connecting them.

“If the implementation includes a ban on all U.S. companies and Tencent’s overall U.S. business transactions, the impact on valuation will be even more serious, because it will also hurt WeChat, the advertising of U.S. affiliates in mainland China, international cloud business, and international game business. , Wait.” Morningstar analyst Chelsey Tam wrote this week.

At the very least, Trump’s order is likely to remove WeChat from Apple and Google’s mobile stores, which in turn means suspension of updates and even interruption of services vital to communications between factories, homes, and boards. Moreover, if American consumer giants like Starbucks Corp. and Walmart are unable to do business with WeChat in China, then Tencent may also take a hit on advertising and e-commerce sales.

But the ban has a broader meaning. Even if the administrative order does not cover WeChat China, it may restrict Tencent in other ways. Take Tencent’s $15 billion cloud service and financial technology sector as an example. This has been the main driver of growth in the past few years. If American companies cannot sell servers to support WeChat, that actually means they cannot sell to Tencent itself unless messaging services are completely under siege. Secretary of State Michael Pompeo has urged US companies to cut ties with Chinese cloud providers, including Tencent and Alibaba, as part of the “Clean Internet” campaign.

Read more: Trump bans the use of top messaging apps to plague global business

Then there is Tencent’s cash cow. Gamers around the world are among the fastest and loudest opponents, and they campaign online to save games such as PUBG Mobile and Call of Duty Mobile. Tencent’s total investment in US game assets and companies (including Activision Blizzard Inc., Fortnite manufacturer Epic Games Inc. and League of Legends developer Riot Games Inc.) is approximately $22 billion.

Bloomberg Intelligence says

Marked by President Donald Trump’s executive order on Tencent and ByteDance, tensions between China and the United States have spread to the software sector. If commercial operations are forced to decouple, this may increase the risk for global video game manufacturers. Tencent has at least $22 billion in gaming investments in the United States. If the ban is expanded, it may face forced divestments like ByteDance’s TikTok, and Activision Blizzard may lose 10-20% of Blizzard’s revenue generated by its cooperation with NetEase in China. .

-Vey-Sern Ling and Matthew Kanterman, analysts

Click here to research.

In recent years, Tencent has been seeking ways to expand its dominance in China’s social media and gaming fields internationally, and has achieved different successes. Now, its smaller global reputation has surpassed the upstart ByteDance, whose TikTok is the first truly successful Internet service made in China.

Now it turns inwards faster than before. On Monday, Tencent launched a deal to merge game streaming platform Douyu International Holdings Ltd. and Huya Company into a local leader with a market value of US$10 billion. Last month, it proposed to acquire and acquire the privately owned domestic search engine Sogou.

But Beijing’s own actions may complicate matters. China threatens to retaliate against what it believes is increasing US aggression, but any attempt to weaken US business in China may harm Tencent and may put non-US companies into trouble.

Bernstein analysts, including David Dai, said in the report: “Tencent and other Chinese Internet companies with operations in the United States still have uncertainty. Investors will think that China’s pure Business is more secure.”

(Update Tencent’s stock starting from the fifth paragraph)

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