The tycoon who jumped off and missed Tencent’s amazing run
Shares of Tencent, a Shenzhen-based internet giant, have risen spectacularly for 13 years; but one Hong Kong billionaire sold his stake too early
In the movie “Social Network”, Napster founder Sean Parker taught Facebook founder Mark Zuckerberg about the “once-in-a-generation-holy-shit-idea”.
It was about a Stanford MBA named Roy Raymond wanting to buy his wife some lingerie but too embarrassed to shop at a department store. So he came up with an idea for a high-end outlet that did not make him feel like a pervert. He got a $40,000 bank loan, and another $40,000 from his relatives and made $500,000 in the first year.
He then opened three more stores and sold the company for $4 million after five years.
Happy ending, right? Except two years later, the company was worth $500 million and Roy Raymond jumped off the Golden Gate Bridge.
That was a widely known story in the 70s. Forty years on, a similar tale is being told by some brokers (minus the dramatic conclusion).
It’s about Tencent, the largest company in Hong Kong in terms of market capitalization over the past two years because of the exponential growth investors expect from its gaming and WeChat service.
After debuting at a price of HK$3.7 in June 2004, shares broke $300 (US$38.4) in 2014 – equivalent to HK$1,500 before a subdivision of the shares.
In the 13 years since their debut, these shares have soared to over 400 times their original value. To put that in perspective, a minimum lot of HK$3,700 in Tencent would have grown to HK$1.5 million at the current market price. Perhaps only a lottery could yield that kind of return.
One businessman who obviously missed the big boat is Richard Li Tzar-kai, second son of tycoon Li Ka-shing.
Before Tencent was listed, Li took a 20% stake in the Shenzhen-based company in 1999, at the peak of the internet bubble, for US$2.2 million. But the bubble “burst” and he sold out after a year for $12.6 million to South African investment firm Naspers Group for a six-time return.
Happy ending? Yes, but over the long term it was Naspers who really won out. It still owns the shares – now worth $73.4 billion.
What would have happened if Li – whose telecom flagship PCCW is valued at US$4.32 billion – had not cashed out all his Tencent investment?
That was the question netizens asked in a discussion forum. Local paper Apple Daily had the answer: Li would have been the world’s third richest person behind the almighty Bill Gates and Warren Buffett, if he still owned 20% of Tencent.
Start-up returns can be very sexy, but investors sometimes also need patience to win big. Li must surely know that now.