Tencent, one of China’s tech and entertainment giants, announced noteworthy revenue gains in its earnings report. The rebound is reflective of China’s ongoing economic recovery, which the KraneShares CSI China Internet ETF (KWEB) is positioned to capture.
In the earnings release on Wednesday, Tencent’s revenue rose 11% for the quarter, reported CNBC. It’s the fastest quarterly growth in the last year and the highest ever for the company. Revenue grew to 150 billion renminbi ($21.8 billion USD) on expectations of 146 billion renminbi.
Adjusted net income and adjusted earnings per share missed, but all other metrics reported positive. Brendan Ahern, CIO of KraneShares, explained more on the China Last Night blog.
“There were plenty of positives including revenue, net income, and EPS were strong year-over-year gains,” Brendan wrote. “International/non-China game revenue shined/+25% to RMB 13.2 billion, advertising revenue improved, and margins and cash flows were strong.”
Other areas of strong growth for Tencent: Online advertising gained 17%, and fintech/business services gained 14%. Adjusted net income rose 27%, though it fell shy of expectations, and adjusted EPS gained 28% but also missed.
Tencent’s wins are a product of two strong tailwinds: economic recovery in China and regulatory support. Tencent Chairman and CEO Ma Huateng attributed gains in many areas to the recovery in domestic consumption. Favorable regulatory support for gaming also lifted earnings, with gaming revenue gaining 9% in the quarter.
See also: “Tencent Increases Buybacks, Looks to Diversify Overseas”
KWEB Offers Significant Exposure to Tencent Post Earnings
The KraneShares CSI China Internet ETF (KWEB) tracks the CSI Overseas China Internet Index. The fund measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors.
Tencent is the top holding of the fund at a 11.86% weighting, and the fund contains many of China’s tech giants.
See also: “2 ETFs That Benefit From China’s Growth and Volatility”
KWEB includes companies that develop and market internet software and services that provide retail or commercial services via the internet. Also included are companies that develop and market mobile software, and those that manufacture entertainment and educational software for home use.
KWEB provides exposure to the Chinese internet equivalents of Google, Facebook, Amazon, eBay, and the like. These companies benefit from a growing user base within China and a growing middle class. The fund has worked to convert all possible share classes over to Hong Kong shares instead of ADRs. This was done to protect investors in case of Chinese delistings within U.S. markets.
The ETF has an annual expense ratio of 0.70%.
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