Why Is Tencent Stock So Cheap?

Andrew Willis:

Tencent TCEHY stock has been declining for about a year-and-a-half now, and this trend has continued with a recent drop in the company's advertising business in Q1 due to regulations imposed on the advertisers in China's education and real estate sectors. From government policies regarding promotions, privacy, and data concerns to antitrust regulations, Tencent has been navigating difficult terrain.

But as senior equity analyst Ivan Su notes, compliance costs can become significant barriers to entry for competitors. Tencent has the resources and a unique collection of marketing channels to try out business models to eventually reach compliance, and their portfolio of games may only be just the beginning. We see a tremendous amount of untapped potential in messaging app, WeChat, where compliance means monetization of a billion-plus user base.

For Morningstar, I'm Andrew Willis.

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