One of Hong Kong’s biggest capital market investors, Tencent had its shares ended on a positive sentiment on Thursday with a rise of circa $22 billion in value that upturned analysts’ estimates.
The Chinese technology giants gave a bullish report on Wednesday of a 48 percent year-on-year rise in revenues and another 61 percent rise in its net profit in the first quarter of the year.
Tencent reported first-quarter earnings that topped analyst estimates, but investors are concerned about rising spending which could weigh on margins of the company.
The company earned its huge market capitalization surge of $20 billion on shares that traded at 416.4 Hong Kong dollars during afternoon trading days. At open market, Tencent shares were traded at 424 Hong Kong dollars but it managed to tally those gains.
Tencent outsmarted all market expectations on the top and bottom line, with its working fringe rise by over 2.5 percent, all from the strong business growth and gains recorded in gaming, video streaming, and WeChat messaging.
Even at this share rise, the company is a little below her record hit earnings in January, which was 12 percent higher. It is not
However, what is becoming a huge concern for investors and analysts is a potential rise in spending which could characterize Tencent’s investment in coming trading days.
Analysts’ concern is informed by the massive growth in Tencent’s spending portfolio which has a potential of being affected in the negative by rising competition and divestment in new areas such as video streaming.
The belief that Tencent is becoming too aggressive in investment and the capacity for managing payouts could compel the company to expand its expenditure in coming years. This could pose a difficulty to the company, experts say.
Ryan Roberts, senior analysts at MCM Partners noted that the challenge for Tencent would be whether or not it has the capacity to keep up with the huge cost of stock that will arise from its involvement in other areas of stock.
Jefferies, Wall Street analysts cut Tencent's outlay target from 530 Hong Kong dollars to 515 Hong Kong dollars a day before the report on stock rise was announced. However, the company is believed to have the capacity to maintain its "buy" ranking.
However, Credit Suisse cut its target price differs as it makes a relatively lower cut on the stock from 530 Hong Kong dollars to 523 Hong Kong dollars, which is a mere 7 margin, but it is able to keep its "outperform" evaluation.
Analysts followed Thomson Reuters to put a mean price target of 513.41 Hong Kong dollars, a figure that represents about 24 percent rise from Tencent’s Thursday's trading value.
Despite the growing concern by analysts, the market still looks positive on the stock for Tencent in coming days but the company needs to thread softly in terms of its huge investment as a negative sentiment could force its spending portfolio out of control.
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