Chinese internet giant Tencent has been on a buying spree in recent years. Pony Ma, the company’s founder and CEO, believes the acquisitions will pave way for future growth of his business empire.
Ma has a deep sense of crisis. The billionaire is said to have trouble sleeping at night because he constantly keeps thinking about the future, bearing in mind the ever-changing consumer demands.
His worries are so valid. As Ma noted, “Everyone in the internet business has an overwhelming awareness of the crisis. Products and consumers demand change so fast, and the sector has an unprecedented reliance on R&D. You can’t bet on luck, and a company might lose out of the game if users are no longer interested.”
“We are skating on thin ice every day, and we’re constantly worried that a tiny mistake may change everything,” he added.
In 2011, a Tencent team proposed to develop the social media mobile application WeChat, but the plan was strongly opposed by some others within the company, given that the group’s QQ instant messaging service was already very popular back then.
After heated discussions and hours of debate, Ma finally decided to give it a go, paving way for the creation of WeChat. The rest is history. Today, WeChat is a key pillar of Tencent’s HK$3.7 trillion market value.
Ma admitted that Tencent would have been beaten if another company had developed WeChat. That short period of one to two months, when the key decision was made, has determined the company’s fate.
Given that record, one can understand why Tencent is so keen now to expand its presence into a wide range of sectors through acquisitions.
The internet behemoth has adopted a proactive strategy of spinning off maturing businesses and investments for public listing. In that way, it can recycle more capital for future acquisitions.
Over the past month, Tencent has spun off online publisher China Literature and online car trading platform Yixin on the Hong Kong bourse, and Sogou, China’s second biggest search engine which Tencent co-owns with Sohu, in the US.
There is speculation that the group also intends to spin off QQ music and other units next year.
Tencent has spent over US$50 billion in acquisitions worldwide in recent years. It has snapped up over 12 percent stake in Snapchat for more than US$2 billion recently. Last year, it acquired the Finnish game company Supercell for US$8.6 billion. In other deals, it spent US$1.8 billion in buying Tesla shares in March.
At home, the internet giant has invested in a wide range of firms, including JD.com, Meitu, Dianping, Ctrip, DiDi, Mobike, WeDoctor, 58.com, etc. Tencent has also made a heavy bet on numerous tech start-ups.
Ma intends to expand the company’s reach to as many potential tech firms as possible. The next WeChat may emerge from its own network, which will ensure that Tencent would keep pace with all new developments.
Certainly, Tencent won’t hold too much stake in these firms. The key is to maintain an ecosystem for the Tencent empire. The HK$3.7 trillion company has emerged as one of the 10 most valuable listed firms worldwide, and its shareholders are keen to see steady growth in years to come.
This article appeared in the Hong Kong Economic Journal on Nov 14
Translation by Julie Zhu
[Chinese version 中文版]
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