Tencent Remains One of the Best Anchors in a Post-COVID World

June 1, 2020

In February, we published Tencent: The Best Anchor for Your Portfolio in the Coming Coronavirus Storm on Smartkarma. We explained our thesis on why Tencent could outperform during the coronavirus given: 

  • The Company's focus on digital services when brick & mortar is considered to be riskier
  • Potential acceleration of structural trends and increased adoption of digital services
  • Cheaper valuations allowing Tencent to strategically take positions or increase stakes in complementary businesses

Fast forward three months and we find that our thesis has played out strongly as decade-long structural trends have been brought forward by years.

Tencent gaming saw a major surge in traffic during the lockdown as people searched for entertainment. The Company's enterprise collaboration tools like WeChat Work and Tencent Meetings saw rapid adoption as companies issued work-from-home notices. Tencent also executed its purchase option for HUYA, increasing its stake to a controlling 50.1%, cementing its lead in China's e-Sports industry (covered in our previous Smartkarma note Accumulate: Tencent Increasing Stake Confirms Strong Outlook for Huya & Esports).

These developments haven't gone unnoticed. As seen from the chart below, Tencent is the only "BAT" company that is currently trading above its pre-COVID price. Tencent has even outperformed broader indices like the NASDAQ, MSCI China, and Hang Seng highlighting its resilience during the crisis.

Sources: Capital IQ, Zero One

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