Tencent Surpasses Facebook to Become the World's 7th Largest Company by Market Cap [Hidden Industry Story]

SNS and Game-Based IT Company 'Tencent'
Various Services Including Mobile Messenger and Payment Services
Stock Price Soars as Non-Face-to-Face Activities Increase Due to COVID-19

Visitors are passing by the Tencent promotional booth in Beijing.
Photo by Yonhap News

[Asia Economy Reporter Kim Suwan] On July 28 (local time), Chinese information technology (IT) company Tencent surpassed Facebook, a social media giant, to become the most valuable company in the same industry. On that day, Tencent's stock rose as much as 4.7% intraday on the Hong Kong stock exchange, trading at 544.50 Hong Kong dollars per share. With a market capitalization of 5.2 trillion Hong Kong dollars (approximately 731.744 trillion Korean won), Tencent surpassed Facebook's 657.83 billion dollars (approximately 717.429 trillion Korean won), rising to 7th place in the world by market capitalization.

Especially this year alone, its market capitalization has soared about 45%, continuing its upward trajectory. How was Tencent's remarkable success story written in the IT industry, where a strong player like Facebook stands firm?

Ma Huateng, Chairman of Tencent. [Image source=AP Yonhap News]

◆ The Beginning of Chinese Messenger... Becoming a Leader in SNS

Although Tencent now shows the glamorous image of a successful company, its beginnings were simple. In 1998, Ma Huateng, who worked as a software engineer at a telecommunications service provider, and his university classmate Zhang Zhidong, based on their IT experience, ventured into business.

Ma Huateng, a graduate of Shenzhen University’s Computer Science Department, grew his earnings from program development through stock investments, using that money to build the company. Tencent, established this way, rose to become China's top company in just 17 years.

One year after starting the business, in February 1999, OICQ (Open ICQ, an instant messenger program) was launched, allowing real-time messaging across various devices from mobile to wired.

Due to patent disputes, the name was later changed to QQ, which became the cornerstone of Tencent's business. Most of Tencent's services operate based on QQ, which is why Tencent is also referred to as QQ.

QQ is a PC-based messenger service that resembles a mix of NateOn and Cyworld. Tencent has openly stated that it benchmarked Cyworld.

Currently, QQ has about 700 million monthly active users and includes various value-added services such as QQ.com, QQ Mail, QQ Show, QQ Games, QQ Membership, QQ Music, QQ Live, QQ Love, and QQ Dating. These value-added service businesses contribute significantly to Tencent's growth, accounting for 76% of total revenue.

Chinese Tencent mobile game. Photo by Yonhap News

◆ The Secret to the Amazing Growth Story... Aggressive Investment

After QQ became the national messenger in China, Tencent accelerated the development of other programs. In 2003, it launched the QQ game portal, and the following year, the portal website QQ.com.

Tencent also achieved great success through exchanges with South Korea. From 2007, games imported from Korea such as CrossFire and Dungeon Fighter Online became hits in China, showing rapid growth.

Building on this, Tencent laid the foundation for becoming a global company by acquiring Riot Games, developer of the online multiplayer game League of Legends, in 2011, and becoming the largest shareholder of China's music company and Finland's mobile game company Supercell in 2016.

Tencent did not stop at just releasing games. It expanded aggressively by investing trillions of won annually in mergers and acquisitions and strategic investments. A representative example is the 72 billion won investment in KakaoTalk in 2012, securing a 14% stake and becoming the second-largest shareholder of Daum Kakao.

Tencent-operated WeChat application. Photo by Yonhap News

◆ Various Attempts... Mobile Messenger WeChat and Weixin Pay

In addition, Tencent provides various O2O services such as the messenger WeChat and the payment service Weixin Pay (WeChat Pay). Through WeChat Pay, users can send and receive money using account transfers or simple payment functions embedded in WeChat.

WeChat has about 1.2 billion monthly active users, with 50% of users spending up to 90 minutes daily on the app. Practically, almost all Chinese smartphone users use WeChat.

Currently, WeChat supports 18 languages, including Chinese, English, Korean, Malay, Spanish, Japanese, and Vietnamese.

Known as the 'Chinese version of KakaoTalk,' WeChat is the fastest-growing mobile messenger in China.

WeChat's unique features are enough to attract users' interest. Even without friends to chat with on WeChat, there are fun elements such as 'Shake,' 'People Nearby,' and 'Message in a Bottle' that make WeChat worth using.

The 'Shake' feature is a friend-finding service. When a user shakes their smartphone, it finds other users within a 1 km radius who are simultaneously shaking their phones while running WeChat. It then displays information so that users who shook together can contact each other.

'Message in a Bottle' allows users to send a message floating in the sea, and whoever picks up the bottle can reply, enabling communication. 'People Nearby' is a location-based feature that finds users closest to you. Thanks to these features, WeChat evolved from a mobile messenger into a social media platform.

Meanwhile, Tencent's stock price has been soaring since mid-March when the COVID-19 situation in China began to stabilize.

Due to the increase in non-face-to-face activities amid the COVID-19 pandemic, Tencent's core gaming business experienced rapid growth. In the first quarter, revenue from Tencent's flagship game 'Honor of Kings' increased by 31% compared to the fourth quarter of last year. Mobile game revenue also rose 15% quarter-over-quarter during the same period.

The total revenue from the gaming sector in the first quarter was 226 million dollars, a 41% increase compared to the same period last year. The cloud business, which Tencent is nurturing as a new growth engine, is also progressing smoothly.

Thanks to this, Tencent Chairman Ma Huateng recently surpassed former Alibaba Chairman Jack Ma, who had held the top spot for years, becoming China's richest person. According to Bloomberg, Ma Huateng's fortune is estimated at 52.2 billion dollars (approximately 56.971 trillion Korean won), while Jack Ma's fortune is estimated at 50.5 billion dollars (approximately 55.115 trillion Korean won).