Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) needs little introduction, but if you’re looking for the next Berkshire, you might be surprised to find it in China. Tech giant Tencent (OTC:TCEHY) has an impressive portfolio of companies that’s been valued at as much as $250 billion, and it also owns the super-app WeChat, whose competitive advantages are manifest.
In this segment of Backstage Pass, recorded on Aug. 23, Fool contributor Jeremy Bowman explains some of the surprising similarities between the two companies.
Jeremy Bowman: So Tencent is the parent of WeChat. That’s most of their business. WeChat is basically a super-app that I think does pretty much all the things we might use in apps like Facebook, or YouTube, or Uber for here. That’s all rolled into one app with WeChat. It’s really a huge business for Tencent. It pairs with other companies. Tencent, you have to think of it in two ways. It’s first the WeChat, and then secondly, they have a really prolific investment portfolio. I think you can almost compare them to something like Berkshire Hathaway in some ways.
The company has invested in a lot of major Chinese stocks, like Meituan, Dianping, which is a food delivery leader; Pinduoduo, which is a social commerce company that’s starting to challenge some of the leaders in e-commerce like Alibaba and JD. They also have a stake in Snapchat parent Snap, as well as Sea Limited, a large Southeast Asian tech company. And I think JD and Nio or a couple of others are the big ones. So you pair that with WeChat, which gives an entree into some of those — you can use that for food delivery, for shopping, and all these other things. So that’s made a pretty strong business for them. They are actually the most valuable Chinese tech company right now.
Looking at second-quarter results, I think a pretty solid quarter for growth. We have, their revenue was up 20% to $24 billion. WeChat members grew 9 million from the previous quarter to 1.251 billion. They also own QQ, which is another popular mobile app, though WeChat has slowly been cannibalizing that. QQ’s user base declined from 606 million to 591 million. That’s been a pattern in recent quarters.
The company also has some cloud-based productivity businesses that you might think of similar to Zoom or Google Docs. That’s more of a secondary business for them. The revenue mix comes from more or less 20% to 30% from each of gaming, fintech, and business services, advertising, and social media. Profitability is great, as it is for a lot of these large tech companies. They’re at 25% profit margin in the second quarter, and earnings per share was up 12% to 54 cents.
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