2023-04-03 12:55:37 ET
Tencent Holdings ( OTCPK:TCEHY ) was up 1.2% at midday in a mostly lower online entertainment sector, alongside an upgrade to Buy at Loop Capital.
The firm has boosted estimates after seeing "encouraging signs in both of the company’s core engines for valuation, gaming and payments, with a bullish set-up for advertising revenue growth," analyst Rob Sanderson said.
Its core online games are set to recover after the fourth quarter showed a year-over-year increase in gross receipts for domestic games, Sanderson said, adding key games were strong into the new year and bolstered by the return of new Chinese approvals. International games are set for acceleration as well, with an expansion of regional intellectual property into new markets and more PC/console game launches.
Advertising, meanwhile, rebounded much more strongly than at peers (up 15% year-over-year), aided by a monetization ramp on Video Accounts.
But e-commerce brings a "large incremental opportunity that should have high synergy with its payments business," Sanderson said.
"Historically Tencent has been a funnel of traffic to other e-commerce platforms, which are advertising customers and often investees," he said. "E-commerce platforms have much greater monetization per user than Tencent generates in advertising
revenue" -- some 2-5 times the market service and commissioner revenue per user than Tencent collects in advertising.
And the resumption of game approvals shows an "improving regulatory dynamic" is starting to take hold, he said.
He's raised 2023 earnings per share estimates to an above-consensus $18.20 from $14.22, and boosted the target price to HK$455 for ordinary shares and to $58 from $44 for the OTC tracker OTCPK:TCEHY , currently implying another 17% upside.
For further details see:
Loop upgrades Tencent to Buy, noting game recovery, e-commerce upside