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Tencent Holdings (OTCPK:TCEHY) was up to 1.2% at noon in a mostly lower online entertainment sector, along with an upgrade to Buy in Loop Capital.
The firm has raised estimates after seeing “encouraging signs in the company’s two main drivers for valuation, gaming and payments, with a bullish setup for ad revenue growth,” said analyst Rob Sanderson.
Its top online games will rebound after the fourth quarter showed a year-over-year increase in gross revenue for domestic games, Sanderson said, adding that core games were strong in the new year and bolstered by the return of online games. new Chinese approvals. International gaming is also set to pick up speed, with regional IP expanding into new markets and more PC/console game releases.
Meanwhile, advertising recovered much more than its peers (up 15% year-over-year), helped by a monetization ramp in video accounts.
But e-commerce provides a “great incremental opportunity that should have great synergy with your payments business,” Sanderson said.
“Historically, Tencent has been a traffic funnel for other e-commerce platforms, which are advertising clients and often investors,” he said. “E-commerce platforms have a much higher monetization per user than Tencent generates in advertising
revenue”: between 2 and 5 times the market service and commission revenue per user of what Tencent collects in advertising.
And the resumption of game approvals shows that an “improved regulatory dynamic” is beginning to take hold, he said.
It raised 2023 earnings-per-share estimates to $18.20 from $14.22 above consensus, and raised the price target to HK$455 for common shares and $58 from $44 for OTC tracker OTCPK. :TCEHY, which currently means another 17% advantage.
