The technology giant based in Shenzhen has been buying back shares nearly every trading day since mid-May, following its slowest revenue growth in six quarters. In June alone, it allocated over HK$9 billion ($1.1 billion) for buybacks, which is expected to be the largest monthly amount for this year, according to Bloomberg calculations.
Since their peak in October, Tencent’s shares have plummeted by more than a third, primarily due to concerns regarding the company’s ability to monetize its significant investments in artificial intelligence. Additionally, investors are increasingly favoring shares of dedicated AI developers in China, sidelining Internet and consumer firms.
“Investors are hesitant; they seek proof that the expenditures have been worthwhile, but there hasn’t been substantial evidence so far,” said Agnes Ng, portfolio specialist at T. Rowe Price, discussing the lackluster performance of internet stocks. “The market is waiting for them to find new monetization methods.”
Earlier this year, Tencent announced plans to at least double its AI investments to over 36 billion yuan ($5.3 billion) by 2026. Recently, the company began testing a new AI assistant for WeChat, known as Weixin in China, to catch up with local competitors in the AI arena. Successfully integrating enhanced AI services into WeChat, which boasts over a billion users, could be essential for the company’s monetization efforts.
The buybacks have likely contributed to mitigating the selloff, with Tencent’s stock declining just 1.8% this month, compared to a 10% drop in the Hang Seng Tech Index. However, a lower closing price in June would mark the fifth consecutive month of declines for Tencent’s shares, the longest losing streak since 2018.
On Friday, the stock’s valuation reached 11.2 times its one-year forward earnings, the lowest level on record—making it cheaper than utility firm CLP Holdings Ltd., whose shares are valued at over 15 times.
Pressure has also increased due to selling by investors in mainland China, who had previously supported Tencent’s stock during downturns. This group is anticipated to be net sellers for a third consecutive month in June, based on Bloomberg data.
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Citigroup Inc. predicts that the rate of share repurchases among Chinese Internet companies will increase as they strive to retain investors. Analysts, including Alicia Yap, highlighted this in a note on Friday. Last week, a top executive from Meituan mentioned that the food delivery company is “severely undervalued” and plans to initiate share buybacks.
Both Meituan and Alibaba Group Holding Ltd. have seen their shares drop by approximately 35% since the start of the year.
“Overall sentiment in Hong Kong equities remains weak, with major tech companies like Tencent and Alibaba being targeted for sales,” noted Ravi Wong, first vice president at Yan Yun Family Office (HK) Ltd. Funds continue to favor sectors positioned at the upstream end of the AI supply chain, he added.
