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What Is the World's Fourth Largest Internet Company Doing Now?


It's a sleeping dragon with a winking penguin, and it is steadily expanding its US properties.

MINYANVILLE ORIGINAL In the biennial bursts of global Olympic mania, the spotlights rarely waver from the podium. Outside the occasional judging scandal or disappointing finish from a storied hopeful, the audience cares who gets the gold, silver, and bronze - and the rest is just a blur.

Outside the five rings, however, we usually seek a more graduated perspective.

For example, claiming the title of the fourth largest Internet company in the world should be enough to generate substantial interest in a firm. And yet, depending on where you are reading this from, odds could be strongly against you ever having heard of the current title holder: China's Tencent Holdings Ltd. (0700.HK).

With a market cap of 417.48 billion HKD, or nearly $54 billion USD, the modestly-named Web conglomerate can't quite crack the top three spots held by Google (GOOG), Amazon (AMZN), and eBay (EBAY), though Tencent has at least occupied the throne of Chinese Internet firms following its usurpation of search giant Baidu (BIDU).

In the motherland, of course, Tencent's winking penguin mascot is a familiar face. While the stark division between China's rural and urban populations keeps large swaths of the population from any exposure to the Internet, within a given city you would be hard pressed to find someone who had not used any of the company's services, let alone not heard of them. Tencent QQ, an instant messaging service, broke 700 million registered accounts in 2011, which is around 200 million more than the entire Internet-using population of China.

Tencent QQ, moreover, is only one of Tencent's operations. Its portfolio of a dozen or so products include an auction site, a Web browser, a microblogging service, and an e-payment platform.

Between its search engine wars with Google and international media coverage of China's censorship policies, rival Baidu does hold some name recognition in the United States. But despite its equivalent ubiquity in China, don't be surprised if you haven't seen Tencent in the Western news - yet.

Tencent already owns and operates several multiplayer online gaming services in China, and it has shown interest in increasing its presence in the Western market. Early last year, Tencent paid $400 million to acquire Santa Monica, CA-based Riot Games. Riot's sole product, the online multiplayer action-strategy game League of Legends, was released in late 2009 and operates on a microtransaction model. We can only guess how many US firms are wishing they had beaten Tencent to the punch. What we do know is that active players of LoL nearly tripled between August and November of last year, from 4 million to 11.5 million.

This June, Tencent bought a minority stake in Epic Games, the North Carolina developer responsible for games such as Infinity Blade and Gears of War, which are popular titles on Apple's (AAPL) iOS and Microsoft's (MSFT) Xbox 360 platforms respectively.

It remains to be seen how Tencent can remain comfortably under the radar of potential American rivals since its largest and most public acquisition may not be far off. When rumors first began to mill that French media conglomerate Vivendi (VIV.PA) was looking to unload its 60% stake in Activision Blizzard (ATVI), Tencent made headlines as one of a few firms interested in acquiring the portfolio that includes the well-known game World of Warcraft. The speculation began after Tencent and Acti-Blizz announced a deal in which the former would bring the latter's popular Call of Duty franchise to China.

Following the reveal of Activision Blizzard's exceptional second quarter earnings report, Vivendi may want to hold onto its majority awhile longer. But even if this particular catch got away, we shouldn't be surprised to see the Tencent penguin snapping up a few more big American fish.
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