China's Largest Internet Company Tencent Sees Big Stock Drop

A slew of analysts cut their forecasts for the company, one of the world's largest Internet firms by market value, amid rising competition.

Tencent Holdings, China’s largest Internet company, took a plunge on the Hong Kong stock exchange Thursday, falling the most in 17 months after a slew of analysts cut their forecasts for the company following its latest earnings report.

Morgan Stanley, Goldman Sachs, JPMorgan Chase, Piper Jaffray, CIMB Group Holdings, OSK Securities Hong Kong and Bocom International Securities all dropped their share forecasts for Tencent, citing higher spending, lower profit margins and slowing growth in game sales -- a key business area for the company -- amid rising competition.

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Tencent shares fell 8.7 percent in Hong Kong Thursday morning before a slight rebound. The company was the worst performer of the day on the territory’s benchmark Hang Seng Index, which ended up slightly, according to Bloomberg News.

“The operating margins decline due to higher sales and marketing spend was a bit worrying,” Alicia Yap, an analyst at Barclays, told Bloomberg.

Tencent, often ranked as the world’s third-largest Internet company by market capitalization behind Google and Amazon, has a wide variety of holdings. They include a Twitter-like micro-blogging service, the “QQ” instant messaging and social-media platform, multiplayer video games, e-commerce sites and WeChat, a popular instant messaging utility.

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The company is Google-esque in influence and scale but notably lags in the online search field behind competitor Baidu, which is estimated to have a 70 percent-80 percent market share in Chinese search.

Tencent has a 4.6 percent share of Huayi Brothers Media, China's biggest non-state film company. And in January, Tencent announced it would be partnering with Hollywood film companies Warner Bros., Universal Studios, Miramax Films and Lionsgate for a new online video venture called Hollywood VIP. The service will involve online distribution of the U.S. studios' copyrighted films and content via Tencent's various online video channels and social-media platforms in China. It is understood that the venture is in a test phase. 

Tencent’s growing spending comes at a time of increased competition as it moves more aggressively into e-commerce to face off against Alibaba Group, which maintains an eBay-like dominance of the lucrative online shopping sector as more Chinese consumers continue to move into the middle class. The company also is looking to begin monetizing its WeChat messaging service, which is similar to Western counterpart WhatsApp and is now the most popular of its kind among young, urban Chinese.

Net income at Tencent grew 37 percent to $557 million (3.46 billion yuan) and sales climbed 53 percent to $1.96 billion (12.2 billion yuan), the company reported during a news conference in Hong Kong. 

Tencent is headed by Chinese billionaire Pony Ma and based in the southern Chinese city of Shenzhen, just across the border from Hong Kong.