Tencent stumbles, drags down Naspers – The Wall Street Journal

DUBLIN – Naspers has been having a rough ride over the last few weeks and there's one likely culprit to blame: Tencent. Over the last few months, Tencent's share price has been declining. While the same is true of most stocks listed in Hong Kong, Tencent has been falling faster and further than its peers, dragged down by worries about future growth and profitability. In response, the company has been engaging in a small share buyback program – an unusual move for an Asian company. Sadly, however, the buyback doesn't seem to be working as planned. Perhaps this is a sign that Naspers was wise to sell part of its Tencent stake when it did earlier this year? Or perhaps it's a sign of more pain to come as China's economy slows in the face of American hostility? – Felicity Duncan.Tencent's Buybacks Aren't Buying Back Faith in Stock.By Steven Russolillo.Tencent Holdings has been buying back shares daily for a month, an uncommon move by a large, fast-growing company in Asia..___STEADY_PAYWALL___.There's just one problem: Its stock continues to sink..After more than doubling last year, Tencent shares have dropped by nearly 30% in 2018, in part because Chinese regulators are crimping the company's near-term growth prospects. Including Wednesday's 2.5% decline, the stock has fallen for nine straight days, its worst losing streak. And shares are on track for their worst annual performance since Tencent went public in Hong Kong in 2004..Tencent has tried to stem the slide by undertaking its first share repurchases since 2014. Corporate buybacks are intended to make a stock price more valuable. By scooping up its own shares, a company shrinks the stock pie, which can improve its earnings per share. Theoretically, that should help push the share price higher..But since Tencent started buying back shares on Sept. 7, its stock price has dropped 9.6%, more than triple that of Hong Kong's Hang Seng Index. The company has so far spent around HK$768 million ($98 million) on the buybacks, according to regulatory filings..One reason: Tencent had only bought back 2.3 million shares through Tuesday, representing 0.02% of its shares outstanding, according to FactSet.."It's a positive, but the amount is insignificant," says Kevin Tam, an analyst at Core Pacific-Yamaichi International in Hong Kong. "They could be trying to signal to the market that they think their stock is cheap.".Tencent shares trade at about 25 times projected earnings over the next 12 months, its lowest forward multiple since July 2013, according to FactSet.."The rationale behind the buyback reflects our confidence in the fundamentals and long-term value of the business," a Tencent spokeswoman said in response to a Wall Street Journal query..Share buybacks are ubiquitous in the U.S., especially among consumer staples and cash-rich companies. They have been the biggest source of demand for U.S. equities, averaging almost $500 billion or 3% of the total market's capitalization a year over the past five years, according to Goldman Sachs..They are a far less common strategy in Asia, however. Buybacks among companies listed in Hong Kong and China have accounted for 0.1% of market value, according to Goldman, which tallied up $24 billion worth of buybacks over the past decade..Investors have long rewarded cash rich U.S. companies who repurchase their own shares. The S&P 500 Buyback Index, which contains stocks with the highest ratio of buybacks to market value, has outperformed the broad S&P 500 by nearly 100 percentage points throughout the buyback index's history..Such investor enthusiasm hasn't translated to Tencent. Much of that could be due to the small size of the buybacks..Tencent, to be sure, may have better uses for much of its cash. The Shenzhen-based company, which owns popular Chinese social-messaging app WeChat and is one of the world's largest videogame publishers by revenue, has been investing in new technologies and internet startups to increase its market share in China..Other Chinese tech giants have also considered buybacks. Nasdaq-listed search-engine giant Baidu Inc. said in June that its board approved a $1 billion buyback program. E-commerce titan Alibaba Group Holding Ltd. said last month that it plans to implement a previously announced $6 billion share-repurchase program. The New York-listed company hasn't made any repurchases under that program, according to a filing..—Shan Li and Quentin Webb contributed to this article.

Tencent stumbles, drags down Naspers – The Wall Street Journal

Tencent's Buybacks Aren't Buying Back Faith in Stock

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