Chinese internet giant Tencent needs to follow Facebook’s lead and monetise its huge user base to help further drive its impressive growth, Citywire + rated Thomas Schaffner has said.
Speaking to Citywire Global, the Vontobel manager said monetisation is one of the few themes his bottom-up China Stars Equity fund is following.
Focusing largely on Tencent Holdings, which is the largest position in the $157 million fund at 10%, Schaffner said the firm is effectively where Facebook was three years ago before it went public.
‘Tencent is moving from being a gaming and social media towards a more general platform for everyday life. They have a very big user base and the next challenge is monetising that properly.
‘We have already seen with the likes of Facebook, which has monetised very well, and the next stage will be for the likes of Tencent to do the same, which we haven’t seen as much of yet.’
Schaffner said Tencent, which was increased from an 8.4% position at the end of 2014 to its current 10% level at the end of March, is in prime position to jump on this increased user level.
‘We are pure bottom-up and we are not playing thematic or sector investments per se but there are certain ideas which have good growth potential. For example, in IT and internet we are seeing that adoption rates are going up in China,’ he said.
Tencent hosts a number of internet platforms, such as QQ Instant Messenger which, according to company data, had 798.2 million users at the end of December 2012.
Having monetised some areas of its platform, notably other chat and mobile gaming arms, WeChat and Qzone, Schaffner said the next stage will be to further unlock the swelling numbers of new users in an effective way.
‘Given the size of the user base, it will become very likely that they will look at more ways to monetise that user base,’ he said.
The Vontobel Fund China Stars Equity returned 38.7% in US dollar terms over the three years to the end of March 2015. This is while its Citywire-assigned benchmark, the MSCI China TR USD, rose 36.2%.