Tencent Is More Than Just the World's Fifth Most Valuable Firm
Xu Yunfeng
/SOURCE : Yicai
Tencent Is More Than Just the World's Fifth Most Valuable Firm

(Yicai Global) Nov. 23 -- Shenzhen-based Tencent Holdings Ltd. [HKG:0700] recently registered a market cap of more than USD500 billion, making it the fifth most valuable company in the world ahead of Facebook Inc. [NASDAQ:FB] and demonstrating the power of China's tech giants.

Founded by Pony Ma in his late twenties in 1998, Tencent initially drew on western products and technologies to expand the Chinese market. For instance, its computer-based messaging platform bore some resemblance to an AOL Inc. product. Its current messaging apps, QQ and WeChat, are both booming alongside its gaming business. The company posted over CNY100 billion (USD15.16 billion) in first-half revenue this year, with gaming being the biggest contributor at more than 40 percent of second-quarter revenue. Its social and lifestyle app WeChat now has more than 963 million monthly active users.

Thanks to Ma's far-sighted decision making and development strategy, Tencent has become one of the world's largest companies in less than two decades, but more importantly, its growth is attributable to a favorable Chinese era with uninterrupted demographic dividend flows and hundreds of millions of users giving real-time feedback, helping the company grow smarter and stronger every day.

Owing to China's rapid economic growth and ever-expanding scale, such indicators as household income and higher education enrollment rates have steadily risen this century, creating enormous demographic dividends. A total of 751 million Chinese people were using the internet in the first half of this year, more than the worldwide average level. It is this growth of the internet that has helped Tencent expand in step with fellow tech giants Alibaba Group Holding Ltd. [NYSE:BABA], Baidu Inc. [NASDAQ:BIDU] and JD.com Inc. [NASDAQ:JD]. Alibaba's Tmall processed 168.2 billion transactions on Singles' Day, a Chinese shopping festival celebrated on Nov. 11.

Despite having gone through nearly four decades of development since the implementation of its reform and opening up policy, China's gross domestic product per capita is still less than 20 percent of America's. In light of a report at the 19th National Congress of the Communist Party of China, the country expects to see its companies continue to double in size and market value if the nation joins the ranks of high-income economies. Companies like Tencent and Alibaba could register market caps in the dollar trillions.

With the rapid growth of demographic dividends in China, the market value of Chinese companies has been growing rapidly, catapulting them to the top. However, as world-class companies, they are tasked with delivering influence and contributions outside of China. In other words, to become a world-class enterprise means to acquire world influence while also making contributions to global development.

Both Tencent and Alibaba have been trying their best to make an impact worldwide. For example, Tencent purchased equity in Snap Inc. [NYSE:SNAP], which runs Snapchat; Tesla Inc. said it would roll out WeChat payment services in Malaysia next year; and Jack Ma met with US President Donald Trump and Philippine President Rodrigo Duterte to aggressively expand Alibaba overseas.

There is still a gap between traditional enterprises, such as Apple Inc. [NASDAQ:AAPL], Google Inc., Microsoft Corp. [NASDAQ:MSFT] and Amazon.com Inc. [NASDAQ:AMZN], which have all made pioneering contributions to the world, but this new era calls for new contributors. New technologies, like artificial intelligence, autonomous vehicles and cloud computing, will all steer future development. Chinese internet giants have made efforts in these fields in recent years and have become global competitors in technological innovation. The Ministry of Science and Technology recently announced that Baidu, Alibaba, Tencent and Iflytek Co. [SHE:002230] have been selected for a national innovation platform for AI, proving that the nation fully backs the direction of its major tech firms.

In future, the development space for Chinese internet giants will not only depend on their own efforts, but also the space available, which will be affected by China's continuous reform and opening up to the world.

Overall, it is pleasing to know that Tencent become the fifth most valuable company in the world, and this ongoing development is not likely to slow anytime soon. However, as a global enterprise, market cap is just one thing. Influence and world contributions are indispensible and will be a development direction for these companies looking forward.

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Keywords: MSCI , Alibaba , Baidu , Tech Giants , Stock Markets