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Frank Taber Profile picture
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Jan 19 • 7 tweets • 2 min read
1/

Value of $TCEHY gaming business.

As of Q3 2021, 24% of total revenue came from domestic gaming & 8% from international gaming, so 32% overall.
2/

Tencent’s LTM revenue is $87b, therefore $27.8b came from gaming.

If we look at the $MSFT acquisition of $ATVI for $68.7b as a guide, they are paying 7.6x revenues for the gaming business.
3/
$TCEHY gaming business at 7.6x sales is worth $211 billion.

Tencent’s gaming business is a faster growing & higher quality business compared to $ATVI with a much lower customer acquisition cost and incredible exposure through WeChat & QQ.
4/
I’d argue that $TCEHY deserves a higher multiple than $ATVI particularly for the international games, but if we adjust the multiple for the domestic segment because of regulatory headwinds. Maybe 6x sales is a fair multiple overall (possibly on the conservative side).
5/
So the gaming business would be worth $167 billion (6x sales)

If we take the core business market value of ~$350b (subtracting the ~$200b investment portfolio). $TCEHY gaming business would be worth ~47% of the core business value.
6/
That valuation would imply that at current prices you are only paying ~$180b for WeChat, cloud, enterprise software, payments, QQ, fin-tech & everything in between. Which would be ~3x sales.

Seems pretty cheap to me.
7/
Subscribe to my newsletter for free to get my deep-dive on $TCEHY on the 1st of February.

Seekingvalue.substack.com

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More from @frankinvesting

Frank Taber Profile picture
Jan 15
Thread/ Special situation $DTY

Dignity is vertically integrated funeral services business in the UK. Stock price is down ~80% from all-time high.

Previous management made bad acquisitions and increased prices as volumes declined.
1/
Thanks to Simon Caufield and his presentation at MOI ‘Best Ideas’ conference @manualofideas @JMihaljevic

Also thanks to @bkaellner for putting this list of companies together, so I could filter straight to the small-caps.

2/
UK value firm Phoenix took advantage of beaten down stock price in 2018 and & have played an activist role.

They have increased their position twice, now owning ~30%. The CIO of Phoenix, Gary Channon is temporary CEO at $DTY currently. Old management has been replaced.
Read 11 tweets
Frank Taber Profile picture
Jan 13
Thread/ $TCEHY back-of-envelope valuation.

Since the IPO in 2004, Tencent has returned ~45% annually to shareholders, turning $1 into $553.

Let's have a brief look at what returns could look like moving forward over the next 5yrs...
1/

Let's start with a base case.

@JordsNel from Vineyard Holdings put in the hard work with his deep-dive that I highly recommend. He shared the est. global industry 5Y growth rates weighted against Tencent's revenue (see below).

Jordan's weighted avg. growth rate was 14.6%
2/
Let's round that up to 15% which is still conservative considering China's CAGR in each industry is likely to be above the global avg.

Additionally the capital allocation from Pony Ma & management + the dominant market positioning is likely to lead to much higher returns
Read 8 tweets
Frank Taber Profile picture
Dec 31, 2021
1/
My largest position in my portfolio is a ~45% weighting in an Australian micro-cap. The company is Kelly Partners Group $KPG.AX

Here is a brief introduction to my highest conviction idea..
2/
Kelly Partners is a specialist chartered accounting network founded by Brett Kelly in 2006. They listed on the ASX in 2017 and now have a ~$200m market cap.

Since 2006, revenues have compounded at 32%. The business has doubled in size on average every three years.
3/
Founder & CEO Brett Kelly owns 50.4% of Kelly Partners. The partners, management and board of directors make up another 8.9%. So overall, the insider ownership is 59.3%

Management are aligned with shareholders and incentivised to create long-term value.
Read 10 tweets
Frank Taber Profile picture
Dec 25, 2021
Thread/

$TCEHY announced that they are giving shareholders their ~18% stake in $JD as a special dividend, which is a 3% yield. Shareholders receive one JD share for every 21 Tencent shares they own.

Here’s why this is even better than it might seem at first glance…
1/
This one off special dividend could potentially be the first of many for Tencent over the long-term. I have seen some commentary online calling this ‘a move out of the $IAC playbook’..

More specifically it’s a homage to the great Barry Diller.
2/
The idea of this is pretty exciting for $TCEHY shareholders. But probably even more exciting for $PROSY shareholders.

Just to give some context for those who are unfamiliar… Here is the Barry Diller & $IAC playbook in a nutshell:
Read 12 tweets
Frank Taber Profile picture
Dec 24, 2021
1/
$BABA in their most recent investor presentation reported the China cloud market size in 2020 at $32B of which they have a market share of ~30% which equated to $11B in revenues FY21.

Now here’s where it gets pretty crazy …
2/

They estimate the China cloud market size in 2025 to be $154B which is a 37% CAGR.

If $BABA maintain ~30% market share that will be $46B in revenues from the cloud business in FY25. Over 4x the current revenue for Alibaba cloud.
3/
Western cloud businesses like AWS and Azure are valued at ~15x sales or more by most analysts.

An equivalent multiple to $BABA cloud in 2025 would give a value of $693b which is over double the current market cap for Alibaba.
Read 4 tweets
Frank Taber Profile picture
Dec 23, 2021
Thread/

Below is a list of five of the best investing Twitter accounts and what you can expect if you follow them.

I’ve also included an introductory thread from each to give you a taste. You will learn a lot following these guys.

Enjoy!
1/

@10kdiver

Great detailed, deep dive threads on some of the more complex or misunderstood concepts of investing. Always enjoyable threads full of great visuals.
2/
@puppyeh1

Coverage and commentary on a range of different asymmetric opportunities. Plenty of special situations and illiquid securities. Plus some honest opinions, no holding back.
Read 7 tweets

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