Tencent (OTC:TCEH.Y) and Alibaba (NYSE:BABA), two of the largest tech companies in China, both recently posted quarterly earnings reports that beat analysts’ expectations. Tencent’s revenue and adjusted earnings rose 29% and 28%, respectively. Alibaba’s revenue rose 34% annually as its adjusted earnings grew 18%.
Those impressive growth rates haven’t gone unnoticed: Tencent’s stock has rallied more than 50% over the past 12 months, while Alibaba’s stock has risen over 40%. So is either stock still worth buying near its all-time high?
How does Tencent make money?
Tencent generates its revenue from four main businesses: online games, social networks, digital ads, and its fintech and business services unit.
The online games unit, which generated 34% of its revenue last quarter, houses the world’s largest video game publishing business. Its top games include Honor of Kings, Peacekeeper Elite, and PUBG Mobile.
The social networks unit — which includes China’s top messaging platform Weixin (known as WeChat overseas), its social network QQ, the video game streaming platform Huya (NYSE:HUYA), and other media services — generated 23% of Tencent’s revenue from value-added services. Weixin and WeChat’s combined monthly active users grew 6% annually to 1.21 billion.
Tencent’s online advertising segment, which generated 16% of its revenue, sells ads across Weixin/WeChat, QQ, its media platforms, and its mobile advertising network. The fintech and business services segment, which generated 26% of its revenue, houses WeChat