Tencent shares resist Hang Seng declines as investors weigh potential coronavirus impact

Shares of Chinese technology giant Tencent seesawed on Thursday as analysts assessed the company’s mixed earnings results as well as the potential impact of the coronavirus outbreak.

Hong Kong-listed shares of Tencent popped over 3% in early trade, before losing steam. Still, they were last seen trading around 1% higher as the Hang Seng Index constituent outperformed the broader index which fell about 3%.

Analysts said the company’s huge gaming unit could help offset the expected weakness in other parts of business resulting from the coronavirus outbreak.

Tencent reported profit of 21.58 billion yuan ($3.09 billion) for the fourth quarter of 2019, missing expectations, but rising 52% from last year. Revenue beat market forecasts, rising 25% year-on-year to hit 105.77 billion yuan ($15.16 billion).

Gaming, which accounts for over 28% of Tencent’s revenue, helped drive the increase along with a bump in its fintech business, which includes its WeChat Pay mobile payments product.

But analysts were also attempting to assess how the Chinese giant might navigate coronavirus headwinds.

“Tencent is a relatively resilient kind of play during COVID-19,” Chelsey Tam, equity analyst at Morningstar Investment Management Asia, told CNBC’s “Squawk Box Asia” on Thursday. “Obviously they are really strong in gaming; during COVID-19, gaming benefited.”

In its earnings presentation, Tencent noted that there will be increased consumption for its digital entertainment products as people stayed home for a longer-than expected time in China.

Meanwhile, the company’s international games revenues more than doubled year-on-year, making up 23% of the total online games revenue in the fourth quarter of 2019. That could be a boost for Tencent as the coronavirus pandemic has forced many other countries to urge people to stay at home.

The company also noted that its video conferencing app Tencent Meeting, which launched in late December 2019, saw daily active users exceed 10 million.

Cloud, advertising warning
But there are concerns over some areas of the business in the March quarter.

Advertising, which accounts for over 19% of Tencent’s total revenue, is expected to be weak in the country.

Research firm eMarketer said China’s total ad spend is expected to grow 8.4% from last year to hit $113.67 billion in 2020. That’s the slowest growth rate since it started tracking ad spend in the country in 2011.

And Tencent warned its cloud computing business could see an impact from the coronavirus outbreak.

“The COVID-19 pandemic is delaying customers’ implementation of cloud-related initiatives and will thus negatively impact our near-term cloud services revenues,” the company said.

But analysts are confident Tencent will be able to weather the impact from the coronavirus.

“I think overall Tencent is more resilient because the higher margin gaming should be able to offset a lot of these headwinds,” Tam said.

And longer term, Tencent is seen as having a strong position in several growth areas.

“Rich games pipeline, technological strengths in ad, secular trend in fintech and biz services pave for sustainable growth,” Jefferies said in a note on Wednesday.