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Tencent: Tech Spending Profile

Tencent is China’s largest Internet company. It has built a huge network in China to support growth of its vast digital ecosystem of services, both those provided directly and by partners. As Tencent Cloud has grown in recent years, Tencent has ramped up its spending on both network infrastructure and R&D projects aimed at deploying new services and developing more of its own network technology. The company has a proprietary approach to data center design which looks promising, it builds its own data center servers, and it has made progress in the last few months with self-design of the key ingredient of the modern data center, server chips. Last year, the company made a commitment to spend $70 billion over 5 years on cloud and related infrastructure and technology, stretching across capex and R&D spend, and it is well on its way. For the 12 months ended September 2021, capex and R&D spend totaled $4.8B and $7.5, respectively, or $12.3B in total.

Increasingly Tencent aims at the global market, in particular in the gaming and cloud arenas. Despite current government pressure on several Chinese tech players including Tencent, the company is poised to become a major global tech brand. The company has been successful in monetizing services which are provided for free (i.e. subsidized by ads) by a number of other tech providers, including Facebook (Meta) and Google (Alphabet). Tencent is one of a few top global players in the gaming market, and becoming a major media player with Tencent Pictures and Tencent Music. Tencent is investing in a number of important adjacent markets with growth potential, including connected cars and robotics. In the cloud, it is well behind China’s top player Alibaba, and further behind the global top three (AWS, Azure, and GCP), but Tencent has deep pockets, technology chops, and global ambitions. Its profile will rise considerably in the next few years. One of many reasons is its positioning to go after “metaverse” opportunities, which blend well with its technical strengths and customer base in both gaming and video.

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Matt Walker
Chief Analyst
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