WEBVTT - Matthew Kanterman on Tencent Earnings (Audio)

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<v Speaker 1>Matthew Canterman joins this director of research yet Ball Metaverse

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<v Speaker 1>Research Partners to take a closer look at ten Cent. Boy,

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<v Speaker 1>this is a complex picture here. On these shares traded

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<v Speaker 1>a little higher in the U s A d r

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<v Speaker 1>s up three percent, Matthew, and that's after the process shares.

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<v Speaker 1>The nasper's assets of ten Cent treated flat in Europe.

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<v Speaker 1>So it's a little confusing. I guess. On the positive side,

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<v Speaker 1>investors seem to like the cost cutting and the management discipline.

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<v Speaker 1>I think, so it's the cost cutting is really impressive.

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<v Speaker 1>You know, they slashed about five thousand jobs quarter over quarter,

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<v Speaker 1>which is a lot of people, but you know, it

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<v Speaker 1>really makes a difference. And I also think there's some

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<v Speaker 1>green shoots and some of the new businesses like advertising.

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<v Speaker 1>You know, ten Cent kind of has a clone of

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<v Speaker 1>a TikTok do in it's their short video program. It's

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<v Speaker 1>really getting a lot of engagement. But they only just

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<v Speaker 1>started monetizing it in July, and the initial trends that

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<v Speaker 1>they discussed are really really encouraging. You know, they expect

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<v Speaker 1>that to reach over a billion R and B i

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<v Speaker 1>F quarterly revenue, you know, within a couple of quarters. Now,

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<v Speaker 1>so it's really going to start ramping up. And although

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<v Speaker 1>the macro environment for advertising and fintech and everything that's

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<v Speaker 1>kind of macro sensitive is not great. We saw the

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<v Speaker 1>July retail numbers in China not great, having these new

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<v Speaker 1>businesses that are organically growing from basically zero can really

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<v Speaker 1>help them re accelerate the top line a lot sooner

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<v Speaker 1>than maybe some people thought. Alright, so you saying advertising

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<v Speaker 1>will come back, you'll focus very much on the beta verse.

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<v Speaker 1>So now, Matthew, and how does that fit into ten

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<v Speaker 1>cents future growth? Absolutely? I mean, you know, ten Cent

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<v Speaker 1>is the global leader and interactive entertainment. And as we

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<v Speaker 1>think about the metaverse at Fall Metaverse Research Partners and

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<v Speaker 1>you know, ten Cents a member of our fall Fall

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<v Speaker 1>Metaverse Index. You know, we think about it as the

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<v Speaker 1>evolution of the Internet to encompass all things real time

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<v Speaker 1>three D and so as a leader in developing real

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<v Speaker 1>time three D experiences, ten Cent will be at the

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<v Speaker 1>forefront of the development of the metaverse, whether that's just

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<v Speaker 1>creating platforms and applications. They've the rumor to have started

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<v Speaker 1>their own hardware business and start looking at building their

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<v Speaker 1>own v R a R headset. So some lard of

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<v Speaker 1>what Meta Platforms is doing, but at a much smaller scale,

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<v Speaker 1>And it goes back to the cost efficiencies and in

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<v Speaker 1>the rational size of the investments. You know, Meta is

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<v Speaker 1>spending ten billion dollars plus a year and growing in apex,

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<v Speaker 1>building out Horizon and all of the hardware. You know,

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<v Speaker 1>ten Cents team is only a couple hundred people, as

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<v Speaker 1>the report said, So it's a much more smaller startup scale.

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<v Speaker 1>And I think it's the right move because this long

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<v Speaker 1>term vision for what the Meta has really is is

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<v Speaker 1>still whether it's five, seven, ten years away, it's still

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<v Speaker 1>a long ways away from being realistic. So you have

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<v Speaker 1>some green shoots there as you mentioned, uh, and also

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<v Speaker 1>that sort of more disciplined in the management thinking. But

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<v Speaker 1>then on the I would guess slightly negative side, the

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<v Speaker 1>size of ten Cent and the size of Ali Baba

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<v Speaker 1>seemed to be a problem for the Communist Party and

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<v Speaker 1>and this common prosperity seems like when when the government

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<v Speaker 1>is not your friend, when the regulator is not your friend,

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<v Speaker 1>it makes a very difficult path going forward. How much

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<v Speaker 1>is that weighing on ten Cents, It absolutely waying, And

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<v Speaker 1>they're still uncertainty there, and that's what makes it way

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<v Speaker 1>even further. You know, we still haven't seen all of

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<v Speaker 1>the rules and regulations we passed around what they call

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<v Speaker 1>the platform economy. So these large internet companies like Ali Baba,

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<v Speaker 1>ten Cent, Pipe Dance, etcetera. And so as those rules

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<v Speaker 1>and regulations you know, come out over the next few months,

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<v Speaker 1>as we expect, we'll get more clarity on what the

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<v Speaker 1>future looks like. But you know, for example, there's still

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<v Speaker 1>uncertainty around the fintech business. Ten cents not even sure

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<v Speaker 1>yet if they need to get a bank a bank

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<v Speaker 1>holding license for that business or if it can continue

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<v Speaker 1>to operate as it is, and so they're waiting on

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<v Speaker 1>the regulations to be formally codified, and so there's uncertainty

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<v Speaker 1>till we get there. Now, what is encouraging is they

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<v Speaker 1>seem to, uh, you know, be at a point where

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<v Speaker 1>they're unraveling some of the web. You know, if we

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<v Speaker 1>look at they've divested Steaks and j D dot Com

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<v Speaker 1>and see Limited. There was rumors they were going to

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<v Speaker 1>divest their Steak in Matuan. They shot that down on

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<v Speaker 1>the earnings call, but even so, you know, there it

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<v Speaker 1>does kind of make sense for them to start unraveling

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<v Speaker 1>that that web of investees in kind of whole horizontally

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<v Speaker 1>competitive businesses because although they don't own these business and

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<v Speaker 1>operate in then they have very you know, they have

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<v Speaker 1>very good partnerships, and you know, there's a lot of

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<v Speaker 1>competitive factors that the government's going to look at and say,

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<v Speaker 1>you might be holding back on consumer value here, and

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<v Speaker 1>particularly as they push more. The problem is that you

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<v Speaker 1>know that they're being forced to sell what could be

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<v Speaker 1>very valuable investments at a very bad time. They still

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<v Speaker 1>made a tremendous return on most of their investments. If

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<v Speaker 1>you look at their portfolio, they're they're the ten cents,

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<v Speaker 1>one of the most prolific investors in global technology across

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<v Speaker 1>interactive Internet, etcetera. And so you know, even if they're

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<v Speaker 1>selling it what we think are the lows of the

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<v Speaker 1>market over the last six tall months for Chinese tech,

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<v Speaker 1>it's still a tremendous value creation. And if they can

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<v Speaker 1>leverage that capital to repurchase shares as they talked about,

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<v Speaker 1>or distribute the shares in those companies two shareholders, you

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<v Speaker 1>know as de stock dividends, I think there's a lot

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<v Speaker 1>of value that can be unlocked and that's always been

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<v Speaker 1>kind of the bear case for ten cents. They have

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<v Speaker 1>this huge investment portfolio. How are they going to unlock

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<v Speaker 1>it and recognize it? The JD dot Com started to

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<v Speaker 1>give us a template for that, and we have to

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<v Speaker 1>see if they can keep doing that. What about their

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<v Speaker 1>video channels, the likes of we chat and taking on

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<v Speaker 1>the likes of TikTok as well. They kind of getting

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<v Speaker 1>to that point where they will be more integrated in

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<v Speaker 1>the West. Ten Cent and we Chat probably not as

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<v Speaker 1>well known outside Asia. Yeah, I mean that that's a

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<v Speaker 1>great question in terms of building that social business outside

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<v Speaker 1>of Asia, outside of China. For now, it seems focused

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<v Speaker 1>on the domestic market. The international business is really focused

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<v Speaker 1>on you know, if we think about it, it's the

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<v Speaker 1>gaming business and and then then you know, the cloud

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<v Speaker 1>business is growing in kind of other parts of Asia

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<v Speaker 1>as well, But for most part, the international business is

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<v Speaker 1>really being driven by gaming. You know, we'll see if

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<v Speaker 1>they can make inroads. I think it would be difficult

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<v Speaker 1>given all the political you know, pushes on both sides,

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<v Speaker 1>right both in China and in the West. In terms

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<v Speaker 1>of building these platforms that run on algorithms and lots

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<v Speaker 1>of data right, and already seeing TikTok gets continued pressure.

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<v Speaker 1>The FCC today just coming out with something else in

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<v Speaker 1>the US about how TikTok posts risks and so, you know,

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<v Speaker 1>it's probably a difficult task, but there's so much room

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<v Speaker 1>to unlock value in China for advertisers with short video

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<v Speaker 1>because even do you in you know that the China

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<v Speaker 1>equivalent of TikTok is is still ramping up their advertising

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<v Speaker 1>from low levels. Curious about what happened with May twin,

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<v Speaker 1>so James Mitchell sort of poured cold water on that

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<v Speaker 1>Reuter's report and the stock Matwin went up. But the

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<v Speaker 1>other stocks, the other companies that ten Cent has a

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<v Speaker 1>big chunk of, they fell in their US trading, and

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<v Speaker 1>what's going on there, I think I think it just

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<v Speaker 1>reflects the fact that after the JD dot Com divestiture

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<v Speaker 1>and after c Limited, we're starting to wake up to

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<v Speaker 1>the fact that ten Cent is going to start to

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<v Speaker 1>potentially consider, you know, selling off, distributing out whatever it

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<v Speaker 1>is some of the more mature investments that they have

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<v Speaker 1>in these companies, whether it be at Billy Billy or

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<v Speaker 1>a Tinto or whomever. And so as they as they

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<v Speaker 1>look across the ecosystem. You know, these are the companies

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<v Speaker 1>maytwan obviously balanced when they said they're not doing it

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<v Speaker 1>right now all, but that's not off the cards forever,

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<v Speaker 1>I don't think. You know, as these businesses get to

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<v Speaker 1>a mature stage where they no longer require ten cents

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<v Speaker 1>expertise to help guide their strategy and growth, and they

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<v Speaker 1>get to a stable, mature state, you know that that's

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<v Speaker 1>the point where Tencent can look at the harvest value.

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<v Speaker 1>Matthew final quick yes or no answer. Do you think

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<v Speaker 1>this is the first and last time we'll see ten

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<v Speaker 1>cents sales full? Yes, I think it's the last time.

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<v Speaker 1>I think there's some promising green shoots to help us

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<v Speaker 1>get back to growth in the second half of the year. Oh,

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<v Speaker 1>bold call, excellent, Thanks very much, Matthew, good stuff. Really

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<v Speaker 1>enjoyed having you with us. Matthew cantum In their director

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<v Speaker 1>of research at Ball Metaverse Research Partners,