Tencent's shares have risen 20 per cent since the release of 20Q1's better-than-expected results.

Tencent's performance last quarter has several bright spots:

1. With the superimposed epidemic during the Spring Festival, 20Q1 mobile games increased by 64% compared with the same period last year. Mobile games such as "Arena of Valor" and "Game for Peace" have long been on the best-selling list of IOS games TOP2, "PUBG MOBILE" and other games have stood out at sea, and Tencent's ability to globalize has been continuously enhanced.

2. Against the trend, the advertising business of 20Q1 has grown strongly by 32%. The increase in the duration of users' use of APP during the epidemic has significantly increased advertising exposure, leading to 47% year-on-year growth of social advertising.

3. The growth trend of video and music streaming media is improving, and the growth rate of paid subscribers is strong. The number of subscribers of 2020Q1 Tencent Video and Tencent Music increased by 26%, 50% to 112 million and 42.7 million respectively compared with the same period last year; the adjustment of China Literature's management team is expected to strengthen IP linkage and output more high-quality adapted works; since the beginning of short videos, Weishi DAU has increased significantly, and Wechat Video account has officially started internal testing.

4. The epidemic led to a short-term slowdown in the growth rate of the company's financial technology and corporate services revenue (YoY+22%/QoQ-12%), but the payment data has rebounded, and the average daily business transaction volume returned to the end of 19 years in the last week of April, and the company took advantage of telecommuting, video, education and other business opportunities in time, and the long-term growth of cloud and other enterprise services business remained unchanged.

First, looking forward to 20Q2, what will Tencent do?

Driven by the strong growth of mobile game revenue, Tencent's performance in the second quarter of 2020 is expected to exceed market expectations.

1. The game continues to carry the banner.

①, deferred revenue at the end of the first quarter (mainly games with unrecognized revenue) reached an all-time high of 83.7 billion yuan, an increase of 22.8 billion yuan over the previous year, and most of the revenue is expected to be recognized within this year.

② and Q2 Chinese mainland have fully resumed production and work, but the size of the game market has not shrunk. According to gamma data, the mobile game market still grew 24.4% in April compared with the same period last year, while it rose 11.9% in May to reach a new high in a single month.

③, with the COVID-19 epidemic in the world, overseas market game industry Q2 ushered in the outbreak. SensorTower data show that Tencent's "PUBG Mobile" and "Game for Peace" have become the most profitable games in the world, attracting a total of US $1.3 billion in the first half of 2020 (excluding third-party Android channels in China and other regions). The global download volume of "Call of Duty Mobile" jointly created by Tencent and Activision has exceeded 250 million. Exceed the performance of "PUBG Mobile" in the same period.

2. Advertising growth may slow down

Tencent Q1 counter-trend growth is mainly driven by the blowout demand of the game and online education industry, but the demand for new Q2 purchases may fall from the previous month, while the advertising demand for offline enterprises and e-commerce platforms has increased. At present, Wechat system advertising accounts for more than 50%, of which moments ads account for the largest proportion. In February this year, Tencent officially opened the fourth ad space on moments, while the third ad space opened in May 2019, which means that this year, Q1 has a comparative caliber of 4 vs and 2, while Q2 has 4 vs.

Second, re-evaluate Tencent to continue

Tencent's PE dynamic valuation bottomed out to 30 times during the outbreak and is now close to 50 times, more than 40 times the long-term average.

Tencent's share price has risen 41 per cent so far this year, reflecting better-than-expected results (4.5 per cent) and higher valuation (35 per cent). In addition to short-term performance, the rise in valuation reflects that the market is optimistic about the future growth of Tencent.

In the future, Tencent's growth will come from two aspects:

First, financial technology business. The war of attrition with Alipay slowed down, closest to the money, the strongest cash ability, WeChat Pay's profit margin level is very flexible, the market underestimated the future imagination of this piece of business (Ant Financial Services Group's valuation has already exceeded trillion).

Second, Tencent has promoted the development and growth of his younger brother over the years, and Tencent has shown his value as a "ETF of China's Internet new economy".

It's not hard to find. Many well-known enterprises we are familiar with are involved in Tencent Investment: JD.com, Pinduoduo, Meituan Dianping, Zhihu Inc., Bilibili, DiDi Global, Sogou, Kuaishou Technology, Bilibili, 58.com, HUYA Inc. Live, DouYu International Live, Himalayan FM, Wanda Commerce, Yonghui supermarket, Vipshop, BBK, KE Holdings Inc, Freedom, City Yilong, Yuanfudao, Lilac Garden, Hornet Nest, Tuhu car Care, Tesla, Inc., Universal Music and so on.

At present, Tencent has invested in more than 800 companies, including more than 70 listed companies and 160 unicorns. Tencent still ranks second in the world in terms of leading investment.

Over the past decade or so, Tencent's investment has brought amazing returns to Tencent. Take Meituan, JD.com and Pinduoduo as an example:

• Tencent invests 18% of JD.com 's shares, and JD.com has a market capitalization of US $93 billion.

• Tencent invests Meituan's comments and accounts for about 20% of the shares, and Meituan has a market capitalization of US $130 billion.

• Tencent invests 18.5% of the majority shares, and Pinduoduo has a market capitalization of US $102.8 billion.

At present, the market value of Tencent's investment in these three enterprises is about US $78.5 billion, equivalent to about HK $608.4 billion, that is to say, the market capitalization of these three Tencent investments alone is as high as 13%, not counting the rest.

III. 20Q2 performance forecast

Tencent will announce its interim results tomorrow. Comprehensive brokerages forecast that 20Q2 non-general accounting standards will make a profit of 29.2 billion yuan, up 24% year-on-year, and revenue 112.5 billion yuan, up 27% year-on-year.

In addition, Tencent's 20Q2 revenue is expected to be 112.4 billion, up 26.6% from a year earlier, and adjusted net profit is 29.2 billion, up 24% from a year earlier, according to Bloomberg forecasts.