This is understandable. Last year, Tencent posted “net gains from changes in fair value of financial assets at fair value through other comprehensive income” of RMB130.5bn ($20bn) compared to a 2019 rise of RMB23.1bn in its private and public holdings.
These stakes in financial and intangible assets and associates helped push Tencent’s assets past RMB1 trillion for the first time in 2020 and total revenues to $73.9bn, an increase of 28% compared to 2019.
As my colleague, Kaloyan Andonov, reported on Monday looking at Tencent’s exits, the company has been on a tear the past few years, chart below.
These gains are so large that Tencent separates them out from its business operations around games, cloud computing and financial services.
Stripping out “M&A-related impact, such as net (gains)/losses from investee companies,” to help form non-IFRS results, Tencent’s profit increased 30% to $19.5bn. Adding net gains plus share-based compensation, amortisation of intangible assets as well as income tax effects and Tencent’s profit jumped 67% year-on-year to $25.5bn at a 33% net margin.
But the Chinese authorities are looking into whether Tencent had grown too powerful.
Pony Ma, Tencent’s CEO and founder, who also attended the call, said Tencent was working with regulators on compliance, including combing through some of its previous investments.
Ma met with China’s antitrust watchdog officials this month to discuss compliance at his group, Reuters had reported.
In the media call post-results, Tencent president Martin Lau told Reuters that during the meeting with authorities, which was voluntary, “we have discussion about a broad range of topics, and the main focus is actually on creating a healthy environment for innovation to happen in China”.
Tencent’s peer, Alibaba, has already come under criticism from the authorities and seen the planned flotation of its Ant Group financial services holding pulled last November and a slowing rate of investment in startups this year.
Whether Tencent, too, will be forced to curtail its golden eggs strategy of corporate venturing investment remains to be seen.
