Tencent Holdings Limited (TCEHY -1.29%) stock has lost its attraction among investors after formerly serving as a pillar of stability and growth. The price of Tencent's shares has decreased by more than 55% since their peak in early 2021. This year alone, the stock lost more than 30% of its value.
Tencent has been a longtime favorite among investors, and for good reason. The company's top and bottom lines expanded at a compound annual growth rate (CAGR) of 44% from its 2004 initial public offering (IPO) and 2021. For early investors who stayed onto the shares, this outstanding performance resulted in tremendous gains.
Revenue growth slowed to 8% year over year in the fourth quarter of 2021, while non-IFRS profit dropped by 25%. The IT expert followed that up with yet another underwhelming performance in the first quarter of 2022: flat revenue and a 24% decline in profit.
The decline in advertising revenue and the halt in gaming revenue growth have had an impact on Tencent's recent performance. Due to the Chinese government crackdown, the latter was badly damaged by decreasing advertising revenue from the education and internet service businesses. The regulatory adjustments made to the advertising sector also had an impact on ad income.
Tencent 'has launched cost management measures and streamlined several non-core companies, which would enable us to achieve a more optimal cost structure moving ahead,' according to Chairman and CEO Ma Huateng, in order to address these problems.
In the midst of the sell-off, Tencent, a significant investor in IT firms, suffered severe losses. It holds sizable shares in firms including Pinduoduo, Sea Limited, and Meituan as well as minorities in a variety of firms like Snap and Spotify. Over the previous year, the market capitalizations of these companies have all seen varying degrees of impairment. Furthermore, Tencent holds stakes in private businesses (like Epic Games), which undoubtedly had varying degrees of effect in the increasingly difficult macro environment.
When you consider that Tencent's market value as of this writing is less than $380 billion, the disclosed portfolio's approximate value of $95 billion (excluding subsidiaries and private interests) is rather considerable. Unsurprisingly, the value of Tencent decreased as a result of the tech sell-off. On top of that, the firm would probably not be a good choice for investors who wished to avoid tech companies.
A long-term perspective is extremely difficult to gauge due to the ambiguous nature of Chinese government rules. Therefore, the pessimism may persist for some time until Tencent provides really encouraging news, such as a dramatic improvement in its financial formance.