Investors Urged To Keep Watch Of Tencent’s Online Advertising Arm In 2019

Tencent
FILE PHOTO: Visitors use their smartphones underneath the logo of Tencent at the Global Mobile Internet Conference in Beijing May 6, 2014. (Photo: REUTERS/Kim Kyung-Hoon/File Photo)

Despite some economic experts expressing disappointment over Tencent's Q4 2018 results, other industry analysts have urged investors to focus on the Chinese gaming giant's online advertising division as it is expected to expand this year.

In The Motley Fool's commentary of Tencent's Q4 2018 results, the finance outlet pointed out that the Shenzhen-based tech provider has been capitalizing on its messaging app, WeChat, over the past months. It is expecting that the company will further leverage on this particular division this year after the arm drew in RMB 7.2 billion in revenue.

Tencent uses WeChat to allow for online advertising services. 2018's revenues accounted for a whopping 38 percent growth in the division, helping curb the company's gaming arm losses. Beijing has been tightening its policies on game approvals and one of the firms that were hit hard through the process is Tencent.

On the other hand, analysts are expecting a bounce back this year as it is expected that the Chinese government will approve more games this year. Aside from it's a boost in the gaming division and growth in its online advertising business, Tencent is expected to go up against China's leading cloud computing firm, Alibaba Group.

The gaming behemoth saw 100 percent year-on-year revenue increase in cloud computing last year, despite an overall drop in profits. Industry analysts predicted that this particular arm and online ads will be the two major drivers in Tencent's momentum battle this year and beyond.

A number of firms kept their "Buy" rating for the Chinese game maker as hopes for the company's rebound increase. Barclays Capital handed a "Buy" rating for the company on Friday with a $54 target price. This rating encouraged other investors to keep watching how the company will recover from a tough year mainly due to the decline in its gaming department.

In other news, it was revealed on Friday that three of China's biggest conglomerates are establishing a billion-dollar fund that seeks to explore the growing ride-sharing industry. According to the report, Chongqing Changan is teaming up with Alibaba and Tencent in a $9.76 billion yuan project in a bid to invest in the ride-sharing sector that has been steadily growing in other countries.

While other auto enterprises will join the venture with 15 percent stakes in the project, Tencent and Alibaba's investment units will make up for the remainder shares to complete the funding. The joint venture's focus will be on the new energy vehicles sect.

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