Tencent Stock at a Glance
- Fair Value Estimate: HK$ 704.00
- Morningstar Rating: 5 stars
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Wide
Tencent Earnings Update
Although wide-moat Tencent's second-quarter results were slightly behind our estimates (but in line with Refinitiv consensus), we see no reason to alter our long-term growth assumptions, given its growth engines remain intact. We maintain our fair value estimate of HKD 704 per share. With the core business trading at around 7% free cash flow yield, we view Tencent's shares as very undervalued. We believe the market underestimates the longer-term revenue contribution from Video Accounts and the potential for more operating leverage as the internet giant cements a more efficient cost structure.
The highlight of the second-quarter earnings was the 34% year-over-year advertising revenue growth. This is even more impressive when we consider the tepid macroeconomic conditions in China. Management attributed the above-industry growth to enhancements to advertising technology and increased monetization of its short[1]video platform Video Accounts. With ad load on Video Accounts running at just a fraction of that on Douyin and Kuaishou, we see room for upside potential.
