Fri, Mar 18, 2011 - Page 10 News List

Tencent shares drop on margin, growth worry

‘REDUCING THE PREMIUM’:Tencent also said the firm plans to ramp up investment in social-networking services, e-commerce and search, which could bring down margins

Reuters, SHANGHAI and HONG KONG

China’s largest Internet company Tencent Holdings (騰訊) suffered its biggest one-day fall in more than two years yesterday, slumping 11 percent on concerns over operating margins and growth.

Tencent, which operates -popular online games and runs China’s largest instant messaging platform, posted a 46 percent rise in fourth-quarter net profit on Wednesday, its slowest in more than three years.

“[Tencent] has been outperforming the market. Investors are just reducing the premium on the stock,” Tanrich Securities vice president Jackson Wong (黃志陽) said.

Tencent’s sharp drop prompted a sell-off in the shares of its major stakeholder, South Africa’s Naspers.

Naspers, Africa’s biggest media company, which owns a 30 percent stake in Tencent, fell more than 2 percent.

Tencent had also said it plans to ramp up investment in social--networking services, e-commerce and search. Company executives told an earnings conference call that the stepped-up investments might hurt margins.

“The market is worried about their growth plans. They will spend more on advertising and platform building and this will probably hurt bottom margins in the near term,” said Benjamin Tam (譚志堅), a Hong Kong-based portfolio manager with Investors Group that holds Tencent shares.

“Sure, investment is good, but it takes time before the new business model can take off and generate significant revenue,” Tam said.

Tencent shares closed 10.9 percent lower at HK$193.2 with 18.9 million shares changing hands, the most active volume traded in more than six months. The broader market was down 1.8 percent.

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