Tencent Shares Soar Amidst US Government’s Swipes As Facebook Moves to Acquire Dubsmash

Tencent Shares Soar Amidst US Government’s Swipes As Facebook Moves to Acquire Dubsmash

Tencent showed defiance on Wednesday, reporting profit of more than 30 billion yuan ($4.3 billion), for the second quarter of 2020.

The gain of the last three months came amidst intense pressure from the White House. Profit was up 28% compared to the second quarter of 2019. Revenue leaped 29% to 114.9 billion yuan ($16.5 billion).

Tencent’s two apps, WeChat and Weixin with over 1.2 billion monthly active users have become topics of interest to investors recently. Trump has targeted WeChat in his executive order last week, when he issued a 45-days ultimatum to both TikTok and WeChat to get acquired by American companies or get booted out.

CNN reported that during a call with investors, executives addressed the ban saying it doesn’t appear to target Weixin, which is the much bigger app.

“They are two different products. Weixin is a chat [app] to serve the users in the mainland of China, while WeChat is a sister product which serves users outside of the mainland China,” chairman and CEO Ma Huateng said.

WeChat and Weixin are responsible for a large part of Tencent’s revenue, and market analysts are concerned that Trump’s order may target Weixin, but executives say the app is far from it.

“Based on our initial reading and subsequent press reports, the executive order is focused on WeChat in the United States and not our other businesses in the United States,” Tencent chief financial officer Shek Hon Lo said. “We are in the process of seeking further clarification.”

Trump’s order will stop WeChat from operating WeChat Pay in the US, a mobile payment service that has been embraced by many users of the chat app.

Tencent being a conglomerate multinational told investors that the United States is not its revenue base, that only 2% of its global revenue is derived from the US.

While the payment service has become integral part of its services, Tencent depends more on its internet gaming for revenue. With its line of games popular among online gamers, the US has become a top destination for many of them such as PlayerUnknown’s Battlegrounds (PUGB), that ranked 10th in the United States last year because it’s a top choice for online gamers in the country, according to analytics company App Annie.

But with the imminent WeChat ban, investors are worried that there will be significant revenue drop due to the loss of the US market.

But the company said half of its revenue for the second quarter came from Value Added Services and online games. Mobile payment and other financial services such as WeChat pay contributed only about 25% of revenue, while 16% came from ads.

Amidst the concern, the company’s stock has risen 2.5% in New York after it released its growth report on Wednesday. Tencent shares plunged 10% following the news that Wechat will be banned in the United States.

Meanwhile, Facebook and Snapchat are reportedly in talks to buy TikTok’s rival, Dubsmash, according to The Information. This is coming at a time when Microsoft and Twitter are bidding for the acquisition of TikTok.

The Trump administration came hard at the video app with the September 15 deadline. However, Facebook’s sudden move to acquire Dubsmash highlights how competitive short video apps are becoming among big tech companies. Facebook has launched Reels through Instagram as a way to counter TikTok’s popularity, but Microsoft’s potential acquisition of TikTok poses a new threat.

The report said Facebook and Snap approached Dubsmash about a deal worth millions of dollars. But the deal is likely going to stir further antitrust scrutiny for Facebook. The social media giant has been under investigation over monopolistic practices perceived through its acquisition of competitors.

Dubsmash is a video sharing app founded in 2014 in Germany. Users can choose an audio recording or soundbite from movies, shows, music, and the internet and record a video of themselves dubbing over that piece of audio.

With its multilingual capacity of 20 languages, the app has become a social media of interest.

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