Tencent's Record Buyback After US Blacklisting: A Bold Move Amidst Geopolitical Storm
Tuesday, Jan 7, 2025 9:16 pm ET
Tencent Holdings Ltd. (HKG: 0700), the Chinese tech giant, has made headlines with its largest share buyback since 2006, following its recent inclusion on the US blacklist. The company spent HKD112 billion (USD14.4 billion) on share buybacks and cancellations in 2024, more than doubling the previous year's scale. This aggressive move comes amidst geopolitical tensions and regulatory pressures, raising questions about the company's strategy and the potential implications for its global operations and partnerships.

Tencent's share buyback program aligns with its long-term investment goals, as it aims to reduce its share capital, increase earnings per share, and enhance the stock's attractiveness to investors. Despite the recent US blacklisting, which could discourage American firms from dealing with the company, Tencent has continued its buyback program. This move signals the company's commitment to long-term growth and shareholder value, even in the face of geopolitical challenges.
The US blacklisting of Tencent, a Chinese tech giant with extensive investments in gaming, social media, and technology, could have significant implications for its global operations and partnerships. As a company with extensive investments in gaming, social media, and technology, Tencent's inclusion on the US blacklist may discourage American firms from dealing with it, potentially disrupting its global ecosystem. This could impact Tencent's partnerships with US companies, such as Epic Games and Activision Blizzard, and its access to the US market. Additionally, the blacklisting may lead to a loss of investor confidence, as seen in the 7% drop in Tencent's stock price following the announcement.
To mitigate these risks, Tencent has been actively engaging in share buybacks. In 2024, the company spent HKD112 billion (USD14.4 billion) on share buybacks and cancellations, reducing its total share capital to the lowest level in a decade. This strategy aims to offset selling pressure from its largest shareholder, South African media giant Naspers, and enhance the stock's attractiveness to investors. By repurchasing and canceling shares, Tencent increases earnings per share, which can help boost investor confidence and mitigate the potential negative impact of the US blacklisting on its share price. Furthermore, Tencent's aggressive share buyback program may signal to the market that the company is committed to its long-term growth and is taking proactive measures to address the challenges posed by the US blacklisting.
Tencent's share buyback program is notable for its scale and consistency. In 2024, Tencent spent HKD112 billion on share buybacks and cancellations, more than doubling the previous year's buyback scale. This strategy aims to offset selling pressure from its largest shareholder, South African media giant Naspers, which has reduced its stake from 28.7% to below 24% since June 2022. Tencent's expanded buyback program also increases earnings per share and enhances the stock's attractiveness to investors. In contrast, other Chinese tech companies may have different capital allocation strategies. For instance, Alibaba has been focusing on strategic investments and acquisitions, while Baidu has been investing heavily in AI and autonomous driving technologies. Geopolitical tensions and regulatory pressures may influence these companies' capital allocation strategies, with some potentially reducing their exposure to certain markets or sectors. However, Tencent's share buyback program demonstrates its commitment to returning value to shareholders while navigating these challenges.
In conclusion, Tencent's record-breaking share buyback following its US blacklisting is a bold move that aligns with its long-term investment goals. While the US blacklisting poses potential risks to Tencent's global operations and partnerships, the company's aggressive share buyback program signals its commitment to long-term growth and shareholder value. As geopolitical tensions and regulatory pressures continue to evolve, Tencent's strategic approach to capital allocation will be crucial in navigating these challenges and maintaining its competitive edge in the global tech landscape.