Tencent 4Q numbers - strong growth with diversification

Tencent released numbers after the Hong Kong market had closed yesterday and before the US market had opened. As such, there was only a single platform where to see the reaction, and that was here in Jozi. Naspers own a little over one-third of Tencent, in one of the best initial investments known. The results for the full year to end 31 December 2016.

Revenues for the full year grew 48 percent to 151.9 billion Renminbi (22 billion Dollars), profits grew 42 percent to 41.4 billion Renminbi (just over 6 billion Dollars). The stock is listed in Hong Kong, so the basic earnings per share number of 4.383 Renminbi translates to 64 US cents per share or 4.94 Hong Kong Dollars per share. At 220.80 Hong Kong Dollars (where the stock trades now), the historic multiple is 44 times. Which is expensive, it is certainly not dirt cheap. And this has always been the case. However, if you take a PEG ratio, it is closer to one than you think, earnings growing at over 40 percent over a multiple of 44 times is just a smidgen over one. In this case, you would have to say that the Tencent share price is "about fair". The stock did clock an all time high in the Tuesday trading session, anticipating results of this nature.

Tencent is an entertainment, communication, news services/online videos, payment systems and advertising platform, with newer businesses such as streaming and content origination. They also offer cloud based solutions, music and of course the original social media platform, QQ and Weixin/WeChat. In terms of entertainment, it is gaming, PC/Mobile, online or offline. It sounds like a whole host of businesses that we know exist independently of one another, from Facebook Messenger, Google to Netflix. Their streaming equivalent businesses grew three fold to have over twenty million users now, and the company generated some content that was well received.

There is also an element of machine learning that will bring all of the platforms closer together, more cloud storage options for the users, expanding the popularity of mobile games, offering more bolt on services. The company is still essentially a gaming and social network one (entertainment) with Value Added Services contributing 71 percent of group revenues, advertising 18 percent of the business with the balance 11 percent. Gaming is around 46.6 percent of all group revenues. That phone and those games sure are addictive. The company is spending a lot of money on their newer businesses, those are basically in "ramp up" mode.

The company continues to evolve into a more recognisable and more diverse business that is becoming more dominant and easier to understand. We should be so lucky that through Naspers we can own such a business. Good business, great growth rates (around 30 percent expected), priced at about the right level. We still accumulate Naspers on the basis that it trades at a pretty significant discount to the sum of the parts.