The Naspers investment in Chinese digital disrupter Tencent is undoubtedly one of the smartest investment decisions made by the South African media giant. About 15 years ago, Naspers paid about $34m on a stake of almost half the equity in the start-up, which at the time was focusing on instant messaging services. The value of Tencent rose quickly, mushrooming to roughly the same as Naspers’ market capitalisation by 2015 – and making the success of Naspers inextricably linked to Tencent. The Naspers market capitalisation hit R1trn in 2016, spurred by Tencent. Naspers has been diversifying in other areas, no doubt with a view to dilute its risk linked to Tencent. However, Tencent is also diversifying, seeking to keep ahead of the digital disrupters in the large, lucrative – but fickle – Chinese market. Tencent released its financial results this week. Bloomberg notes that net income for the fourth-quarter climbed 47 percent, missing estimates, while revenue climbed 44 percent, roughly in line with expectations. The Tencent share price declined a little on Thursday. However, this followed a rise of nearly 19 percent in Hong Kong this year to a record high of HK$225.2 on Wednesday, Reuters reports. – Jackie Cameron
By Jonathan Browning and Crystal Tse
(Bloomberg) – Tencent Holdings Ltd. has agreed to invest in Chinese live broadcasting app Kuaishou ahead of a potential initial public offering of the Baidu Inc.-backed startup, according to people with knowledge of the matter.
Tencent and Kuaishou plan to announce the deal as soon as this week, one of the people said, asking not to be identified because the discussions are confidential. Tencent has been boosting spending on services including video-streaming to retain users for its WeChat and QQ messaging platforms.
Kuaishou, which runs a live-streaming social media platform similar to Twitter Inc.’s Periscope and Facebook Inc.’s Instagram, was founded in 2011, its website shows. Millions of original videos are generated daily using its technology, according to the website. The company competes with Sina Corp.-backed Miaopai, which allows users to film and share brief videos.
A representative for Kuaishou declined to comment, while a spokeswoman for Tencent didn’t immediately respond to an email and mobile phone text message seeking comment.
Tencent said this week it isn’t focused on making its video businesses profitable this year. It’s looking to find ways to keep people engaged with WeChat, the messaging service with almost 900 million monthly users.
Beijing-based Miaopai, owned by Yixia Technology, closed a $500 million funding round in November with investors including Sina’s Weibo Corp. and Shanghai Media Group.
Tencent joins rush into AI to keep lead in social media, gaming
by Lulu Yilun Chen
(Bloomberg) – The days when Chinese internet companies could simply rely on the country’s sheer population are over. That’s why Tencent Holdings Ltd.’s Ma Huateng is betting on the future of artificial intelligence.
Tencent has assembled more than 250 people for its AI Lab, a fledgling unit intended to work with its most profitable divisions from gaming to social media. The company aims to teach machines how to better battle human players and strike up meaningful conversations, said Zhang Tong, the newly appointed director of the research unit. In Tokyo over the past weekend, Tencent demonstrated an early result of that collaboration, pitting its “Jueyi” against fellow computer players of the classical game Go in an annual competition. Jueyi – which means “fine art” – won against defending champion DeepZenGo.
China’s largest internet companies are investing billions in AI research, hoping to shed a reputation for being fast imitators and break new ground in a blossoming field. With AI set to transform everything from mobile apps to cars, companies like Tencent and Baidu Inc. want to pioneer ways to build smarter software and products. Ma, Tencent’s billionaire founder and chairman, has warned that companies that fail to create technology will lose out in future.
“Tencent used to be a product-driven company. Now we want to transform into a technology-driven company,” Zhang said in an interview. He wouldn’t say how much Tencent was investing but affirmed the company was in it for the long haul. “We’ve reaped the benefits of a large population, now we need to use technology and AI.”
Best known for messaging service WeChat, Tencent’s business encompasses news, entertainment and online games such as League of Legends and Clash of Clans. It’s become intertwined with the lives of hundreds of millions of Chinese who use WeChat and QQ to order food, play games and hail taxis. While it employs AI in areas such as news recommendations, infusing the technology into other services could have broad impact.
For now, Tencent’s demonstrating its ability in gaming, revealing its own version of DeepMind’s Alpha Go in Japan. Jueyi won all 11 of its matches in a field of about 30 entrants, beating the eventual runner-up — Japan’s DeepZenGo — twice along the way.
The company will use the techniques it’s learned to teach its games to put up a better fight — addressing, among other things, a longstanding complaint of expert players. While Zhang didn’t provide names, he didn’t rule out titles like League of Legends or Dungeon Fighter.
Zhang, 45, whose AI career includes stints at International Business Machines Corp. and Baidu, said one of the biggest attractions for him was Tencent’s trove of data, hoovered up especially from its social media apps.
Tencent amasses data predominantly from semi-public content on QQ and WeChat and social media postings on sites like Weibo, China’s Twitter-equivalent. It places strict limits on what data staff can access, said Zhang. For instance, the company doesn’t use personal conversations on WeChat, which has more than 889 million users. The company will use certain mechanisms to wipe names from conversations so user identities will be protected, Zhang added without elaborating.
His team of more than 50 researchers and 200 engineers were pulled from among the ranks of technology stalwarts such as Google and Facebook Inc. He turned to the rest of Silicon Valley and China’s top universities for talent. Now that the staff is in place, one of their immediate goals is to bolster speech-recognition: helping machines comprehend and converse with humans.
The team also works on content generation, including creating automated news stories, photos and music. The company is building a platform that will provide tools for small businesses and startups that want to develop their own AI technology.
Tencent’s looking for ways to keep users glued to WeChat. On Wednesday, it signaled its intention to keep spending on areas from payments to content to increase social media engagement. Ma Huateng said the company could explore AI technology for driverless cars and online health care in the future.
In many of those areas, Tencent will be competing with a pair of powerful local rivals: Baidu and Alibaba Group Holding Ltd. are also in the race to develop AI use cases. They too can harness a vast database of information. Baidu, the country’s largest search engine, already employs 1,300 people in its artificial intelligence business and this year hired former Microsoft AI-architect Qi Lu to helm its operations.
Another thing all three have in common: they want to rank among the foremost companies in the field of AI, despite competition from names like Alphabet Inc., Facebook, IBM, and Microsoft.
“We want to be on par with the best technology companies in the world,” Zhang said. “We don’t just want to import, but also create innovation.”
Tencent plans to spin off its e-book business
By Lulu Yilun Chen
(Bloomberg) – Tencent Holdings Ltd. is planning to spin off its e-book business as it boosts spending on payments and content to lure users and keep them glued to its WeChat service.
An initial public offering of the Kindle-like business is planned for Hong Kong, the Shenzhen-based company said Wednesday after posting quarterly earnings that trailed analyst estimates. While net income surged 47 percent to 10.5 billion yuan ($1.5 billion), that trailed the 11 billion yuan expected by analysts.
Chairman Ma Huateng is prepared to wear the hit to profit margins that comes from investing in areas such as video and mobile payments, which he sees as critical to retaining users for WeChat and QQ. Keeping customers engaged underpins its strategy to grow advertising and game sales, with the company recently unveiling “mini programs” that provide access to everything from ride-hailing to food delivery without leaving China’s most popular instant message service.
“Tencent’s payments services has been instrumental in helping its mobile games business generate money,” said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch. “Tencent is absolutely deploying the right strategy to continue to invest for future business.”
While revenue in the quarter climbed 44 percent to 43.9 billion yuan, costs jumped 60 percent to 20.2 billion yuan — almost half its overall sales. Tencent’s shares had slid 2.4 percent to HK$219.80 by 9:36 a.m. in Hong Kong on Thursday.
“The payments service is treated as an infrastructure, that’s why even as user numbers grow fast, bank fees grow as well, so what we generate is similar to what we invest,” Ma told reporters in Hong Kong. “A lot of our cloud business is also in the investment phase, that’s why costs in the short term will be high.”
China Reading Ltd., as Tencent’s literature unit is known, is said to have asked bankers to pitch for a role arranging an IPO that could raise about $500 million. President Martin Lau said it would also consider other spinoffs without identifying targets. The company also operates a music and video-streaming service.
While Tencent’s services have a massive reach in China, growth is slowing as it nears saturation in its home market. In addition to new games, it’s funding blockbusters including “Kong: Skull Island” and “Warcraft” and sitting atop a plethora of intellectual property for anime and online novels distributed via its websites. The company has aspirations to eventually create a Marvel-like movie empire, as it competes with Alibaba Group Holding Ltd. for users.
While losses from the video business surpassed that of the cloud division, and will grow in the medium term, Tencent isn’t focused on making it profitable this year, the company said.
That’s driving it to find ways to keep people engaged with WeChat, the messaging service that some 889.3 million monthly users employ to make payments, buy goods and catch up with the news. “Mini programs” are stripped-down versions of popular mobile apps that not only keeps users in WeChat but could pit it against Android and Apple Inc. app stores, by obviating the need to download full versions of apps.
“One of the more important reasons we started mini programs was to boost interaction between online and offline,” said Lau. “The service can help solve pain points for offline merchants who have access to customers but want to bring them to their online services.”
For now, it still gets most of its revenue from online games, where it competes with local giants including Netease Inc. Revenue from Value Added Services, which includes online games and messaging, jumped 27 percent to 29.2 billion yuan, while online advertising sales climbed 45 percent to 8.3 billion yuan.
While games have underpinned Tencent’s rise, it risks getting drawn into a political spat between China and South Korea.
The company hosts games from South Korean developers and could run afoul of a Chinese boycott of goods from its Asian neighbor, retaliation for hosting a controversial U.S. missile-defense system. Martin Lau said that could affect approval of new games, which need to be cleared by the government, although existing titles wont be affected.
“Tencent is directing its energies into these growth segments with the right rationale — each segment presents a long runway for growth and all three are impressive market opportunities in their own right,” Bhavtosh Vajpayee and Bill Liu, analysts for Sanford C. Bernstein, wrote in a research note. “Yet, the blow of content cost inflation for video, ramp costs for cloud and the price for share gains in payments also need to be factored into a prognosis for the stock over the next 12-18 months.”
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