Tencent shares have plunged this year as China puts a number of its most successful companies in its crosshairs, but can it shrug-off the regulatory fears and continue the momentum? We explain what to expect and consider how Tencent shares could react.

When will Tencent release Q2 results?

Tencent will release second quarter earnings on Wednesday August 18.



Tencent Q2 earnings preview: what to expect from the results

Tencent’s sprawling business empire is predicted to possess continued to power ahead within the second quarter of 2021, building on the 25% rise in revenue and jump in profits delivered within the first when all areas of the corporate , from its video games and social networks to its fintech and business software units, experienced strong double-digit growth.


Analysts expect revenue to rise 21% year-on-year to only under RMB139.0 billion within the second quarter from RMB114.9 billion the year before, while profit is seen rising 8.6% to RMB40.5 billion from RMB37.3 billion. Diluted EPS is forecast to dip to RMB3.38 from RMB3.44.


The stellar levels of growth Tencent shareholders became familiar with looks set to continue, a minimum of for now. But the growing and overriding fear is that Tencent’s growth are going to be hampered and its leading position in key markets are going to be weakened by the crackdown on internet-based companies in China.


Just this morning we saw China’s State Administration for Market Regulation issue new draft rules aimed toward banning unfair competition within the web sector, proposing a ban on companies using data, algorithms and other technical advantages so as to drive traffic or influence people’s choices, threatening third-party audits of knowledge for people who fall foul. China is reviewing how companies responsible of swathes of knowledge manage such information and therefore the proposals might be potentially devastating.


Other areas of Tencent’s business also are under the spotlight. Its gaming arm has drawn attention after regulators described video games as ‘spiritual opium’ and announced a crackdown on the quantity of your time children under 12 should play them and banning their ability to get in-game items. a number of Tencent’s M&A deals have also come under scrutiny.


Meanwhile, it had been recently reported that its music arm spin-off – Tencent Music Entertainment – has delayed its Hong Kong IPO after China overhauled copyright rules after accusing the corporate of owning 80% of exclusive rights within the country. Tencent Music’s ADRs on the NYSE have shed over 70% in value since late March.


The situation is complex, and clarity hard to return by. Tencent has thus far remained fairly tight-lipped on the evolving picture in China and played down the potential impact it'll wear the business, but ultimately the arrogance in Tencent’s prospects has collapsed and investors now consider the corporate – alongside other Chinese players like Alibaba – a way bigger risk.


Tencent shares have plunged over 43% since peaking at an all-time high in January as a result.


Notably, brokers remain bullish and suggest the sell-off this year has been overdone. The 53 brokers covering the company’s Hong Kong stock currently have a Buy rating and a mean target price of HK$711.17 – implying there's over 63% potential upside from the present share price.


It is likely to require time for the sweeping regulatory changes to start out impacting its numbers, leaving investors closely watching the numbers for any signs of a slowdown. But Tencent remains expected to deliver strong growth for the rest of the year and, if it can shrug-off regulatory fears and still deliver, then we could see it rebound from the heavy fall.


Where next for the Tencent share price?

The Tencent share price steadily trended higher from late 2018. The pandemic saw the share price ascent devour sharply from mid-March 2020 when it had been trading around HK$326.00 to its all time high of HK$775.60 reach mid-February this year. 


Since then, the worth has been forming a series of lower lows and lower highs during a descending channel reaching a coffee of HK$422.00 late July, a 15-month low. 


The RSI is supportive of further downside whilst it remains out of oversold territory at 30. 


Immediate support are often seen at HK$422.00 the July low. Beyond here HK$400 the May 2020 low and lower band of the descending channel could offer some support before 330 the March 2020 low. 


On the flip side buyers would wish to push beyond HK$488 horizontal resistance so as to approach HK$535 the 50 sma and therefore the upper band of the descending channel, A level which might be tough to interrupt .