Tencent’s advertising business has plenty of room to grow
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Tencent’s advertising business has plenty of room to grow

Here are two important facts about Chinese internet giant Tencent: it’s the world’s most valuable social networking company, and it’s a relatively small player in the global advertising market. This means, of course, that the potential to capture revenue from China’s $53 billion online ad market is huge – and Tencent is already making headway on this journey.

Tencent’s massive success in mobile gaming and social networking means it hasn’t had to rush into advertising. Consequently, the company only makes 17% of its revenue from advertising. This means Tencent has the opportunity to really understand its customers, and build the kind of ecosystem that they want to inhabit before it becomes a vehicle for advertising.

In the words of Lau Seng Yee, the executive at the helm of Tencent’s advertising business: “Seriously, we are all users of WeChat [the company’s China-ubiquitous social messenger network], you don’t want to be overloaded with unnecessary information. I’m not saying we are not in a hurry. I think we are in a hurry to try to make sure that we understand our users well.”

Tencet’s share price has appreciated by 117% so far this year

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SOURCE: Yahoo Finance

Nonetheless, Tencent is growing fast, and its advertising business is on the way up. According to research group eMarketer, the company’s ad revenue could “more than double” to $11.4 billion by 2019. One caveat – indeed, what might give Tencent the edge – is their focus on “doing it right”. According to Lau:

“When the ultimate goal is to win, there are times where people just go all the way to win. Management is trying to figure out how do we make sure we can encourage the tasks of building trust.”

Disclosure

Dominion holds Tencent in its Global Trends Ecommerce Fund.


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