China's Internet giant Tencent is showing signs of a slowdown in its mobile gaming sector, but Peter Thal Larsen says they have a few tricks up their sleeve and investors should remain optimistic.
(SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: “One of the big winners in China’s red-hot internet sector, Tencent, showing weaker than expected earnings Peter. That’s got to hurt. (SOUNDBITE) (ENGLISH) ASIA EDITOR, REUTERS BREAKINGVIEWS, PETER THAL LARSEN, SAYING: “Well I think ‘weaker than expected’, the ‘expected’ is the key point in this. Really we’ve seen this company has grown incredibly quickly, and is still growing incredibly quickly really. But what’s happened is that maybe some of the growth has slowed down a little bit. So the thing that caught people by surprise is that Tencent’s gaming revenue, the money they make from people playing games on their phones and on their PCs, fell slightly between the second quarter and the third quarter. Now we think that’s a bit of a blip, there are some sort of technical reasons why that happened and we think probably that will pick up again. But it does beg this broader question which is, how big is Tencent going to become? And what is this business going to look like once the really rapid growth slows.” (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: “Precisely the point, Peter, I mean Tencent has been a stellar performer, but can it really keep it up? It is showing some signs of weakness now. (SOUNDBITE) (ENGLISH) ASIA EDITOR, REUTERS BREAKINGVIEWS, PETER THAL LARSEN, SAYING: “Well there’s a little bit of weakness but we still think there’s quite a lot of growth here. I mean the question really for Tencent is, how big does this business become? And that’s partly a question of, how many users can it attract? It’s got this WeChat chat app which is now approaching 500 million active users. That’s slowing down a bit, but it’s still growing.” The question then — the second question then — is, how much revenue can they generate out of those users. Now games has been the main source of income, but we think there are other tricks that they have up their sleeve. For example, advertising is growing very quickly but it’s still a fairly small part of the business. That can develop. And then there are other sources of revenue that they will be able to generate from this user base that should sustain their financial growth and also hopefully sustain the very high valuation that Tencent has at the moment.” (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: “Tencent looking for a new sources of revenue, trying to boost up advertising as its earnings come in weaker than expected.”