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Tencent Aims High in China E-Commerce

New WeChat advertising platform is another reason to own TCEHY


When social media giants like Facebook (FB) and Twitter (TWTR) first rolled out their IPOs, everyone knew that the key to their success was advertising. More specifically, the theory was that if social media sites could monetize their mobile platforms and successfully inject a non-intrusive advertising model that users would actually embrace, the stocks could be virtual gold mines.

Well, for the most part, Facebook and Twitter have done just that. Facebook’s mobile ad revenue surged to some $1.3 billion in Q1, a big jump from the $377 million in mobile ad dollars it grabbed in Q1 2013. Twitter is even more dependent on mobile. During its Q1 earnings release, Twitter said revenues increased by 119% over the prior year to $250 million — which accounts for about 80% of its total ad revenue.

For China e-commerce giant Tencent Holdings (TCEHY), the story is much the same. The online and mobile software services firm’s chat platforms are the most popular among Chinese mobile users, and the company already has demonstrated its ability to monetize mobile.

Tencent’s WeChat mobile-messaging service can be likened to Facebook’s WhatsApp, and the success of WeChat, along with messaging app QQ Mobile, has helped TCEHY rake in big revenue. In fact, the company recently boosted its Q1 revenue by nearly 300%, and that was just from the previous quarter. Now Tencent is making a move to supercharge those revenues with an even bigger push to create an online advertising platform for WeChat.

Tencent has just launched a new service that allows companies with verified WeChat accounts to pay user fees to place ads on other companies’ official pages. Revenue from the fees will be divvied up between Tencent and the companies that host the ads.

Unlike its current ads, which are distributed as instant messages, the new platform has ads placed at the bottom of corporate pages. The beauty of these ads is that advertisers can target specific user categories based on demographics such as age, gender and location.

While the new Tencent ad service still is in the beta version stage, I suspect that its success and eventual widespread rollout will be another big boost for its top and bottom lines, as well as for TCEHY shares. One key reason why is the sheer size of Tencent’s WeChat, which currently has about 400 million monthly active users. Another big reason is the company’s demonstrated capacity to monetize mobile.

As I wrote back on May 20, Tencent has the ability to “mint money from mobile.” That skill has helped push the stock to a remarkable one-year gain of 91.7%. Perhaps even more impressive is the 10.5% surge in the shares since that May 20 mention.

Given Tencent’s demonstrated track record of successfully monetizing mobile, I suspect the new WeChat platform also will be successful. That success should keep the revenue and earnings streaming in — and those two metrics will keep buyers piling in to TCEHY.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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