Improving profitability at China’s largest online gaming and social media network
Tencent is, in our view, one of the best companies to own in the Chinese internet space. The technology giant is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services and e-payments/e-commerce. We have owned shares in the company for more than 15 years.
Tencent’s platform has grown significantly over the years. However, there appears to be no sign of complacency, and the company has continued to develop new functions within WeChat to improve monetisation rates and enhance the quality of the franchise. In recent periods, new game approvals have picked up again, while its video accounts and mini-shop e-commerce services have been growing strongly. It has proven its ability to deliver growth despite the weak economy, and the management is confident that profitability will improve further as it continues to develop its high-margin businesses.
In 2024 Tencent reported healthy net profits and sustained improvements in its gross margin. In addition, Tencent bought back more than US$ 14bn of shares in 2024 (more than double the size of its share repurchases in 2023), which combined with a healthy dividend payout should provide a boost to shareholder returns. We believe that Tencent has visionary management, is well aligned with shareholders and has high governance standards – characteristics of a quality company to own for the long run.
Segment gross profit margins
Increasing focus on returning cash to shareholders (USD bn)
Source: : Company reports, FSSA Investment Managers, as at 30 April 2025.
Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same.
All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.