AI Censors and 8 Other Things You Didn’t Know About Tencent – Motley Fool

Posted: December 28, 2019 at 11:48 pm

Many investors recognize Tencent (OTC:TCEHY) as the largest video game publisher in the world; the owner of WeChat, China's top messaging app; and a market leader in the digital-payment, advertising, and media-streaming markets.

When reviewing Tencent's financials, they'll likely focus on its core growth engines -- its gaming, digital advertising, fintech, and cloud businesses. However, those headline numbers only give us a surface-level understanding of the 21-year-old company. Today, we'll examine nine lesser-known facts about the Chinese tech giant.

Image source: Getty Images.

WeChat isn't just a messaging app that serves 1.15 billion usersmonthly. It's an all-in-one "super app" that lets users pay bills, order food, book tickets, hail rides, and more.

However, any messages and images sent on WeChat areautomatically scanned for taboo topics by AI algorithms. Offending messages are deleted, often instantly, to prevent China's cyberspace regulators from cracking down on the platform. This isn't surprising, but it's a controversial tactic that often frustrates the app's foreign users.

Tencent's first product was a clone of the messaging app ICQ called OICQ (Open ICQ).ICQ's owner, AOL, threatened tosue Tencent over trademark violations, and OICQ was rebranded as QQ, which expanded into a broader messaging ecosystem. Roughly 731 million people still use QQ on a monthly basis.

Last year, the Central Committee of the Communist Party of China (CPC) honored 100 individuals fortheir contributions to the country. That list included Tencent CEO Pony Ma, Baidu (NASDAQ:BIDU) CEO Robin Li, and Alibaba (NYSE:BABA) founder Jack Ma. Jack Ma is notably a member of the CPC, but Pony Ma and Robin Li are not affiliated with any political parties.

Chinese regulators crack down on tech companies for myriad reasons, so companies often go to great lengths to stay in the government's good graces. Tencent even launched a game two years ago to coincide with President Xi's speech during the 19th Congress of the CPC. That game, Clapping Hands for Xi Jinping, played a short video of Xi's speech, and players tried to clapas many times as possible within 19 seconds.

However, that fawning gesture didn't prevent China's regulators from suspending all new gaming approvals for nine months the following year and crippling one of Tencent's core businesses.

Tencent, Alibaba, and Baidu are clearly subservient to China's government, but that's just the tip of the iceberg. Three years ago, the Wall Street Journal claimed that the Chinese government wanted to buy1% stakes in Tencent and other domestic tech giants, gainspecial "management shares," and claim seats on the companies' boards. It's unclear if those plans are still in motion, but they indicate that the Chinese government wants to tighten its grip on its top tech companies.

Image source: Getty Images.

Two years ago, China's Ministry of Science and Technology recruited the BAT triumvirate and iFlytek to lead the development of new AI technologies.

The Ministry assigned Baidu to self-driving cars, Alibaba to smart cities, iFlytek to voice technologies, and Tencent to computer vision applications in healthcare. This complements WeChat's integration into China's hospitals, many of which accept WeChat Pay payments, and the expansion of its cloud business into the healthcare sector.

Tencent is the second-largest cloud platform provider in China after Alibaba, but it still trails far behind market leaders like Amazon and Microsoft in overseas markets. But that could change soon.

Tencent already operates data centers in the U.S., Canada, Singapore, India, and Germany, and it believes that it canmore than quadruple its overseas cloud revenue this year. It faces an uphill battle, but it could be an appealing choice for overseas companies that want to tether themselves to Tencent's ecosystem of social, advertising, and gaming services in China.

Tencent has invested in a long list of companies overseas, including Activision Blizzard, Epic Games, Tesla Motors, Snap, and nearly 50 unicorn start-ups. That massive investment portfolio now generates over a quarter of Tencent's profits -- and results in big gaps between its GAAP and non-GAAP earnings.

Lastly, Tencent's largest stakeholder is South African internet group Naspers (OTC:NPSNY), which invested $32 million in the company in 2001. It sold someofits shares since then, but it stillowns a 31% stake -- which is worth about $150 billion today. Pony Ma ranks second in ownership with a 9% stake.

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AI Censors and 8 Other Things You Didn't Know About Tencent - Motley Fool

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