Business

Tencent hits lowest price in five years on China economy concern

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Tencent Holdings is on track to close at its lowest point in five years as investor sentiment turned negative following concerns over China’s macro outlook.

Shares of the WeChat operator fell as much as 5.3% in Hong Kong trading Thursday, setting it on a path to close around HK$235 per share — its lowest point since early 2017.

The drop comes as Chinese stocks have declined across the board this week, weighed by concern about their earnings outlook after China delayed the release of key economic indicators and reiterated its commitment to a harsh Covid Zero policy at its twice-a-decade Communist Party congress. The Nasdaq Golden Dragon China Index, which tracks a basket of Chinese tech stocks that trade in the US, fell 7% on Wednesday to the lowest reading since 2013.

Once China’s most valuable company by a comfortable margin, Tencent’s fortunes have slumped this year as the world’s second largest economy has struggled to find momentum. It’s now tied for the lead with liquor giant Kweichow Moutai Co., which most recently overtook Tencent last month.

Tencent recorded its first-ever revenue drop in the quarter ended June and is expected to report negligible sales growth and a 34% drop in net income, according to analyst estimates. Online ad sales have been hit by China’s economic slowdown and the bread-and-butter gaming division is facing stiffer competition. CICC lowered its Tencent price target by 20% last week, citing weakness in its gaming business.

Read more: Tencent’s Sales Fall for First Time as China’s Economy Sinks

Like domestic peers, Tencent has moved to shore up its bottom line by lowering costs and disbanding non-core businesses after a year of Beijing’s sweeping crackdown that engulfed everything from online entertainment to venture investment. Given the new realities, executives have said that international games, cloud software and WeChat’s TikTok-style short video will be their major strategic priorities.

© 2022 Bloomberg

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