Tencent, the Chinese Internet giant has lost over $220bn of its value. The company share price has dropped almost 40% since highs earlier this year. A battery of bad news has rocketed the company. Slower growth, lower margins, regulatory scrutiny on its biggest business segment and large shareholder selling have all spooked investors. So far, the markets have shrugged the company’s responses. Neither share buybacks nor restructuring of the business have soothed markets concerns. $220bn value drop is one of the largest ever in history, but it could get even worse as it appears to be no end in sight.   

Tencent (TCEHY US), the Chinese internet giant has lost almost 40% of its value (over $220bn) since highs earlier this year. On Monday it broke the psychological important HKD300/share in Hong Kong. Tencent’s stock have returned over 67,000% since going public in 2004.  The stock is currently having the biggest drawdown since going public in 2004.

Source: Bloomberg

The stock has this year substantially underperformed its global tech peers.

Source: Bloomberg

Several different factors have led to this massive loss of value.

Firstly, it joined global tech companies in their decline as investors worried about overvaluation of the sector. Secondly, markets got spooked when Naspers (NPSNY US), its biggest shareholder decided to unload over $11bn worth of stock in March.  Shortly thereafter, the company announced lower margin guidance post a revenue miss. CNN wrote at that time;

Investors worry about Tencent’s future growth prospects, a major shareholder offloading a big stake and the global slump in tech stocks.   

The barrage of bad news continued post the company announced its first ever drop in profits in August. This was on the back of (as we wrote earlier) Chinese regulators until further notice halting approval new gaming licenses. As gaming is a vital part of Tencent business, such halt has had a severe detrimental effect. This on top of general investor worry about emerging markets.

Shortly after the profit-warning announcement, Tencent announced it would start a buy-back program. On October 2nd they announced a restructuring plan. The internet giant will consolidate three content business groups to one unit and create a new group for cloud and smart industries. China Knowledge summarizes;

The company hopes to reduce its dependence on video games and shift towards new businesses such as cloud and content through the restructuring.

None of these announcements have calmed the markets. Investors are worried about continued regulatory roadblocks, an unclear international expansion strategy and rapidly growing debt.

As the outstanding investor concerns have not been properly addressed, further declines are not impossible.