The Motley Fool

Like Tencent? Here Are Two Companies With Similar Potential

Tencent Holdings Ltd (SEHK: 0700) is a leading internet company in China with businesses across online games, communication and social, digital entertainment, content and more.

The company was listed on the Hong Kong Stock Exchange in 2004. Since then, it has grown into one of the biggest companies in the world. In our previous article here, we explore the reasons to like the company.

In this article, however, we will be focusing on two companies related to Tencent that investors might find interesting.

The Spotify of China

The first company to explore today is Tencent Music Entertainment Group – ADR (NYSE: TME).

As a quick introduction, Tencent Music is a music streaming platform for the Chinese market. You can think of it as the Spotify of China. In fact, Spotify is a significant shareholder in the company, owning 9.1% of the company’s stock (the second biggest owner after Tencent which owns 57.4% of the company’s stock).

There are many reasons to like the company. For one, it is the biggest online streaming platform in China, providing service to 661 million mobile monthly active users (MAUs). Comparatively, Spotify has 248 million MAUs.

Next, the company is growing its business rapidly, with revenue up by 31% year-on-year to RMB 6.51 billion in the latest quarter. What’s more, NET PROFIT grew 6.4% year-over-year to RMB 1.03 billion. That’s pretty impressive for a growth company!

The Spotify for literature

The other company that we will look at today is another platform business of which Tencent is a majority shareholder – China Literature Ltd (SEHK: 0772).

China Literature operates a leading online literature platform in China. As of June 30, 2019, the company had 7.8 million writers and 11.7 million online literary works, covering over 200 genres and reaching 217 MAUs.

The company generates most of its revenue from its online paying readers and the monetization of its intellectual properties. So far, the company’s performance has been encouraging, with revenue growing 30.1% in the first half of 2019.

Similar to Tencent Music, it is generating a profit despite growing its business at high rates.

Foolish takeaway

Tencent has generated significant wealth for its investors since its IPO in 2004.

Yet, for those who missed the Tencent boat, these two companies offer a second chance. Both companies are well-positioned to generate enormous value for shareholders.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.