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Bear of the Day: Tencent (TCEHY)

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Tencent Holdings (TCEHY - Free Report) is the giant Chinese Internet portal which provides mobile, telecom, entertainment, social media, and financial services to the largest middle class on the planet -- and monetizes most of these services with online advertising.
 
The stock slipped to a Zacks #5 Rank on August 20, when it was trading above $44 per share, because analysts took EPS estimates down for this year and next as trouble in China's economy begins to surface.
 
Before I give you the details about the decline in Tencent growth, let me share some really seismic news about the power of Internet companies in the brave new world of the World Wide Web.
 
Next week, a new S&P 500 Communication Services sector will replace the current Telecoms sector, and it will absorb some of the biggest stocks from other sectors like Technology and Consumer Discretionary, with the big targets being Alphabet (GOOGL - Free Report) , Facebook (FB, Disney (DIS - Free Report) , and Netflix (NFLX - Free Report) .
 
This "re-balance" of the structure among Tech/Media titans should add some market volatility this month as the stock market architects at S&P grapple with the "4th industrial revolution" we now so glibly take for granted and just call "the web"... and its machine learning tentacles. 
 
But let's hear it from a leader of the sector re-hab...
 
"The lines among media, communications, and content are blurred," David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said. "It is time to acknowledge this convergence and the overlapping services these companies provide."
 
Investing in the Web/Media Titans of China = No Brainer
 
I wrote a Bear of the Day article about Tencent on August 20 to highlight the drop in growth estimates ahead of their earnings report that week. Since the company's slight miss and subdued outlook, analysts have taken down both revenue and EPS targets further.
 
Here's the updated Zacks Detailed Estimates page...
 
 
To summarize, in the last 30 days, 2018 analyst EPS projections have fallen nearly 10% from $1.34 to $1.21 and 2019 estimates were cut a chunky 14% from $1.80 to $1.55.
 
More importantly, revenue projections have dropped significantly from about $49.5 billion to $47.5 billion for this year.
 
And the top line drop for next year was even faster from $65.4 billion to $62.2 billion.
 
Still, a true growth investor like me can't help but notice the sales trajectory remains solidly above 30%.
 
As I explained in my last update in August, it's hard not to love 30%+ annual revenue growth, year after year -- especially for a $400 billion Internet behemoth.
 
And despite the downward estimate revisions, which will keep Tencent a Zacks #5 Rank Strong Sell for some time, 15% and 25% EPS growth this year and next is nothing to complain about from a company on par with Alibaba (BABA - Free Report) , the so-called "Amazon of China."
 
But the fact remains that analysts are having to keep lowering their growth projections month after month. And if that trend persists, all future estimates remain in jeopardy.
 
It appears best to stand aside until more visibility about the Chinese economy and its dominant consumer companies comes into clearer view.
 
The Zacks Rank will let you know.
 
Wall Street’s Next Amazon
 
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
 


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