Tencent Leads Internet Retreat on Concern Shares are Overvalued

Tencent Holdings | Source: Tencent

HONG KONG, China — Tencent Holdings Ltd. fell to a three-month low in Hong Kong amid growing concern that Internet companies are overvalued.

Tencent slid 4.8 percent to HK$485.20 at 3:37 p.m. in Hong Kong. The stock has lost 24 percent since March 6, after a 1,266 percent surge during the previous five years sent its price-to- earnings ratio to its highest level since 2008. Yahoo Japan Corp. slid 5.5 percent in Tokyo, while Rakuten Inc. retreated 4.3 percent.

Technology companies have led gains in Asian shares during the past 12 months on speculation growing demand for social networking, e-commerce and online games will boost earnings and fuel takeovers in the industry. Speculation that the rally has gone too far is building, with Twitter Inc. plunging as much as 11 percent in extended trading as user growth slowed.

“Investors are concerned about companies such as Tencent which have high valuations,” Chen Geng, an analyst at Phillip Securities HK Ltd., said by phone in Hong Kong today. “This is a reasonable correction.”

The Bloomberg Asia Pacific Internet Index fell 2.5 percent today to the lowest level since Dec. 5, paring its gain during the past 12 months to 28 percent. The MSCI Asia Pacific Index fell 3.4 percent in the same period.

The Internet gauge is valued at 26 times estimated earnings for the current fiscal year, more than twice as expensive as the broader regional index and near the biggest premium since 2006, according to data compiled by Bloomberg. Tencent trades at a multiple of 32.

Twitter Growth

Twitter said yesterday that membership in the first quarter reached 255 million, with year-over-year growth decelerating to 25 percent from 30 percent in the previous period. The stock plunged tumbled in extended trading even as sales more than doubled to $250 million, topping analyst estimates.

Tencent, Asia’s largest listed Internet firm, has lost about $36 billion of market value since closing at a record high in Hong Kong trading on March 6. The company posted fourth- quarter net income that trailed analysts’ estimates last month on higher costs for its WeChat messaging service.

“The fundamentals of the company are still good,” Chen said. “The commercialization of Wechat is proceeding and there’s no evidence of it lagging behind its rivals.”

By Weiyi Lim; Editors: Richard Frost, Sarah McDonald