HONG KONG — Tencent Holdings (HKG:0700) saw its shares tumble 7.05% on Wednesday, closing at HK$440.60, the lowest level of the session. The decline was fueled by persistent worries over the gaming industry and the suspension of the company's share buyback program, which is required under Hong Kong Exchange rules ahead of its upcoming board meeting.
Trading volume surged to 66.38 million shares, nearly double the normal daily average, indicating active selling pressure rather than just a lack of technical support. The stock's drop was the steepest single-day decline in over a year, reflecting investor concerns about gaming revenue growth and increased capital expenditure on artificial intelligence initiatives.
Under HKEX regulations, companies are prohibited from repurchasing shares during the 30-day period before a results board meeting. Tencent's next board meeting is scheduled for August 12, and the last buyback occurred on July 9, when the company acquired 1.065 million shares at an average price of HK$470.13. Wednesday's closing price was 6.3% below that average, underscoring the absence of corporate support.
The magnitude of the sell-off suggests more than just the lack of buybacks. Wednesday's trading volume was roughly 62 times larger than the most recent repurchase, pointing to active repricing by investors rather than mere technical weakness. The broader market also felt the impact, with peer NetEase (HKG:9999) falling 7.39% to HK$193.00, while Alibaba Group (HKG:9988) slipped 2.91% to HK$113.60. The Hang Seng Index declined 0.95% to 24,892.66.
Gaming stocks were the primary drag on the Hong Kong market, as investors weighed regulatory uncertainties and shifting consumer trends. Meanwhile, mainland Chinese markets showed a contrasting picture, with the STAR50 index rising 1.5% and semiconductor stocks gaining 3.4%, as investors rotated profits from Hong Kong tech names.
Tencent's price-to-earnings ratio stood at 14.95x at Wednesday's close, 5% lower than NetEase's 15.75x and 16% below Alibaba's 17.85x. The discount reflects investor caution over Tencent's heavy spending on AI infrastructure, which has yet to translate into proven profitability from recent product launches.
In the first quarter, Tencent reported a 9% revenue increase to RMB196.5 billion, with domestic game sales up 6% and marketing services expanding by 20%. Business-services revenue also grew 20%. Capital expenditure rose 16% to RMB31.9 billion, while free cash flow improved 20% to RMB56.7 billion. Chairman and CEO Ma Huateng noted that core businesses "continued to grow their engagement, revenue and profit."
However, both first-quarter revenue and IFRS net profit fell short of analyst estimates. Revenue came in at RMB196.5 billion versus forecasts of RMB198.96 billion, while net profit of RMB58.1 billion missed the RMB61.42 billion consensus. These misses have added to investor caution ahead of the August 12 results.
Investors will be closely watching for signs that deferred game-revenue recognition can offset rising AI-related expenses. Potential downside risks include lower game revenues, higher AI spending, or chip supply constraints, any of which could widen the current valuation discount. Conversely, quicker recognition of deferred revenue and stronger advertising growth could help narrow it.
Tencent shares had risen only 0.3% in the week to July 17, despite a 4.6% decline on Friday. As of Wednesday's close, the stock was trading 4.5% lower than at the end of the previous week, with no company earnings scheduled until the August 12 board meeting.
