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Who may become the next target of Tencent’s reduction?

  On August 17, Tencent Holdings (00700.HK) announced the second quarter financial report of 2022, showing that the total revenue was 134 billion yuan, a year-on-year decrease of 3.1%. Advertising revenue was 18.6 billion yuan, a year-on-year decline of 18.4%. It can be said that this is the most challenging quarter for Tencent since its listing.
  Under the dual pressure of the macro environment and the growth ceiling of its own business, Tencent’s management also used the words “slim down” and “refinement” at the financial report. Just one day before the financial report was released, there were rumors that Tencent would reduce its stake in Meituan. Tencent responded by saying it “did not comment.”
  If combined with Tencent’s financial report, it seems that it can explore its next possible target for reduction.
  Before analyzing Meituan, let’s take a look at why Tencent reduced its holdings of JD.com at that time. In terms of industry classification, Meituan and JD.com are closer, both belonging to pan-e-commerce and retail. Most of the JD shares held by Tencent have been distributed to shareholders as dividends to shareholders. Tencent’s stake in JD.com also fell from 17% to 2.3%.
  Although Tencent’s investment in JD.com does not constitute a monopoly, Tencent was the largest shareholder of JD.com before reducing its holdings. Tencent’s initiative to reduce its holdings and give up its position as the largest shareholder is also a response to the current regulatory environment.
  Moreover, JD.com’s growth rate and competitive pressure are also increasing. First of all, look at the growth rate. The growth rate of JD.com in the past three years has dropped from about 40% to less than 20%. In 2022, the growth rate of the e-commerce market is only single digits. Secondly, from the perspective of the competitive landscape, the current JD.com has even greater opponents and challenges. In the e-commerce industry, there are not only Taobao, Tmall and Pinduoduo, but also Douyin and Kuaishou. In local instant retail, JD Daojia’s rival is still Meituan.
  The user growth rate of JD.com is also far slower than that of Meituan and Pinduoduo. As of the first quarterly report of 2022, JD.com’s annual active users are 580 million.
  Tencent holds a relatively high proportion of e-commerce and retail. If JD.com, Meituan, Pinduoduo, and Vipshop are all divided into pan-retail and e-commerce, Tencent was their first, second, second, and second largest shareholder respectively. If you add Sea, the total market value of pan-e-commerce companies invested by Tencent once exceeded 300 billion US dollars.
  Although the scale of the e-commerce industry is large, such a high degree of concentration can easily lead to the risk of concentrated exposure. In particular, the increasingly fierce competition in e-commerce and the slowing growth of the broader market. Therefore, Tencent’s configuration in China’s pan-e-commerce and retail fields can be said to be “very high.” It is also reasonable to reduce the holdings of Meituan in the future.
  Tencent first reduced its holdings of Sea, and then reduced its holdings of JD.com, both of which are pan-e-commerce companies. Meituan, which was rumored to reduce its holdings before the earnings report, is also an e-commerce company. Next, who might Tencent reduce its holdings?
  quick worker? Kuaishou does not belong to pan-e-commerce, but in the income structure, e-commerce already accounts for 10%. From 1 trillion Hong Kong dollars at the time of IPO, Kuaishou only has a market value of more than 300 billion yuan at present, because its business growth has encountered huge problems. Especially the growth of users. At the beginning of Kuaishou’s IPO, the capital market once felt that its user growth rate could move closer to that of Douyin, but with the release of several quarterly financial reports, Kuaishou’s DAU is still around 350 million. Douyin’s MAU is close to 800 million and DAU is 450 million.
  Moreover, Kuaishou’s losses are still continuing. The outside world only sees the excitement of short videos. From the perspective of business model, the business of e-commerce is better than short videos. Pinduoduo’s gross profit margin, sales expense ratio and operating profit margin completely surpass Kuaishou. Pinduoduo currently makes $500 million per quarter, while Kuaishou loses $500 million per quarter.
  In addition, the competitive landscape of short videos and live broadcasts is still not clear enough. Although Kuaishou is already the second largest short video product in China in terms of DAU, user duration and other indicators. But the competitive landscape is still not clear enough. The first is the Matthew effect of Douyin, which is getting stronger and stronger. Whether it is content or commercialization, today’s Douyin has been called a “national-level” short video app. The Douyin e-commerce is also much larger than the Kuaishou e-commerce. Various popular and popular live broadcast rooms are also mainly from Douyin, such as Dongfang Xuan and Luo Yonghao’s “Make Friends” live broadcast room. Secondly, although Tencent’s video account cannot completely surpass Kuaishou, the growth of data is very rapid. In Tencent’s quarterly financial report, it also separately disclosed the data of the video account.
  Considering that Tencent is a shareholder of Kuaishou, if Tencent itself has a lot of room for growth in this business, and the current data performance is very good, then reducing the investment target and competitor seems to be a more correct choice?
  Vipshop? At present, Vipshop will not have much strategic significance for Tencent. At the beginning, Tencent’s strategic idea was to make up for JD’s shortcomings in the apparel and fashion fields by investing in Vipshop. But five years later, Tencent’s strategic vision was not realized through investment.
  And today’s Vipshop faces more cruel competition than JD.com. For two consecutive quarters, Vipshop’s revenue has declined year-on-year. While the company’s explanation for the macroeconomic-induced sluggish demand is difficult to convince the public. Because Jingdong, Douyin, and Kuaishou e-commerce are all growing. In fact, Vipshop’s share is gradually being eaten by short videos and live broadcasts.
  These situations, Tencent, as one of the shareholders of Vipshop, cannot be ignored. Today’s Vipshop, in the secondary market of the US stock market, I think is a cigarette butt that is going out. There is not much value for ordinary investors, nor for major shareholders.
  Pinduoduo? From the perspective of its growth and business, it is still in a stage of medium-speed growth. Financially, Pinduoduo’s performance is also better than that of most Internet-listed companies. Annual Non-Gaap profits may reach $2.5 billion.
  In the next year or two, Pinduoduo will still have new engines of growth. For example, grocery shopping and community group buying. At present, the number of cities covered by Duoduo Shopping is second only to Meituan. The company’s play style and efficiency are obviously higher and faster than Meituan. At present, the number of employees of Pinduoduo is less than 20,000, while Meituan is close to 80,000. But the market value of Meituan is not four times higher than that of Pinduoduo. Financially, Meituan is still losing money, while Pinduoduo is already profitable.
  Moreover, Duoduo Shopping has now become the company’s second-largest growth engine outside of e-commerce. However, the current valuation of Pinduoduo is still the valuation of the e-commerce part.
  Therefore, if you want to deduce Tencent’s next target to reduce its holdings, the least likely to reduce its holdings is Pinduoduo.

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