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Why Tencent Stock Dropped Today | The Motley Fool

What happened

Tencent Holdings (OTC:TCEHY) fell 7.5% Wednesday after its largest shareholder announced plans to sell as much as $15 billion worth of its stock. 

So what 

Prosus (OTC:PROSY) said it will sell up to 191.89 million Tencent shares, or roughly 2% of the Chinese tech titan’s total share count. The sale will take Prosus’s massive stake in Tencent down from 30.9% to 28.9%.

Image source: Getty Images.

Prosus will use the cash it raises to diversify its portfolio. The Netherlands-based investment company promised to hold off selling any more of its Tencent shares for the next three years.

Now what

Prosus’s parent company, Naspers (OTC:NPSNY), made one of the most lucrative investments in corporate history. In 2001, it purchased a roughly 33% stake in Tencent for $32 million. The video game and financial services leader has grown into one of China’s largest and most powerful companies in the two decades since then — and the value of Naspers’s stake has skyrocketed.

Yet Prosus, which was created by Naspers in 2019 to house its Tencent stake, has long traded at a significant discount to the value of its investment assets. The company’s market capitalization stands at roughly $180 billion, according to Yahoo Finance!, while its stake in the $745 billion Tencent alone should theoretically be valued closer to $230 billion. Monetizing a portion of its holdings could help to remind investors of the value of its portfolio — and potentially help to close this valuation gap.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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