Ever since Naspers sold off part of its stake in Tencent, the stock price of Tencent has slid even further.

It seems that at every low point, some investors went bottom fishing. Nonetheless, each of the past few slight recoveries failed to sustain itself.

Without flying colours

We’ve been following this vote of confidence. The lack (and dilution) of liquidity in Hong Kong market is certainly a contributing factor. The government’s continuous tightening of rules on the gaming industry was also impacting Tencent, which derives one third of its income from gaming.

Adjusting the groups

Tencent itself also has done some serious self-reflection.

Over the weekend (working days in China right before the 7 day National Day holidays), Tencent announced that it is undergoing restructuring, reducing the previously 7 business group into 6.

The company keeps Wexin Group (WXG, which runs WeChat), Interactive Entertainment Group (IEG), Technology and Engineering Group (TEG), and Corporate Development Group (CDG). Online Media Group (OMG), Mobile Internet Group (MIG) and Social Networking Group (SNG) will not be retained.

Two new groups will be created: Cloud and Smart Industries Group (CISG), Platform and Content Group (PCG).

CISG will try to reduce the gap between Tencent’s cloud services and the galloping AliCloud from competitor Alibaba Group; while CISG will probably try to form a concerted attack (and defensive) forces towards ByteDance (Toutiao & Tik Tok).

Not the first time

It is worth noting that it is not the first time that Tencent makes major shifts in its business lines and commanding structure.

While the company has become quite comfortable since its latest restructuring in 2012, over the course of its 20 year history Tencent faced a number of life-and-death as well as soul searching moments.

Anyone still remembers the epic battle between Tencent and Qihoo 360?

Alibaba-ByteDance alliance?

Pony Ma and his lieutenants clearly see a crisis at Tencent’s doorsteps: you just need to speak to any key employee of its arch-rival Alibaba, they will tell you how much confidence they have gained over the last two years to win over Tencent.

If Alibaba forms an alliance with ByteDance, a very real possibility with Softbank (a long time Alibaba ally and the latter’s largest shareholder) potentially leading ByteDance’s pre-IPO round.

Whether the structuring is effective or not, it will at least re-ignite the battle spirit of Goose Factory (nickname for Tencent, especially by its engineers).

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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