Forget Apple. This dominant tech company could be a better bet for the next decade.

Apple is one of the best companies of all time. It has been at the forefront of the tech industry since its inception, and its products have helped propel its stock price, making it one of the largest companies in the world by market capitalization.

Despite its already massive size, Apple continues to show growth. Still, Apple’s size weighs on its growth rate and if the recent growth trend continues, Apple’s stock price performance for the next decade is unlikely to match that of the past.

Fortunately, there are plenty of other top tech stocks with better prospects than Apple that investors can consider. One of them is Tencent Holdings (OTC: TCEHY).

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The rise of a large technology company

Tencent is the leading player in China in several business segments: online games, mobile messaging, online video, online payment and music, to name a few. Its flagship social media app, WeChat, has 1.2 billion monthly active users (MAU), behind only Facebook, which has 2.7 billion AMUs.

It didn’t start out as a winning business. It started as a single product company focused on QQ – instant messaging software – in the late 1990s and early 2000s. The product became a hit with users, making it the messaging software. instant de facto in China in the PC age. Tencent then provided additional services – online games, entertainment, news, etc. – to delight its hundreds of millions of users. Its crown jewel, WeChat, came much later and in many ways is an evolved version of QQ suited for the mobile age.

Why is Tencent so successful

Of all the things that have contributed to Tencent’s success, two stand out: its massive user base and its diverse business model.

The first is a result of Tencent’s leadership in social messaging tools, which are extremely popular among Chinese users thanks to the strong network effect – where each additional user will make their network more valuable to all existing users.

Unlike peers like WhatsApp, which remains primarily a messaging app, WeChat has taken it a step further by offering all kinds of other services including e-commerce, online food ordering, payments, blogging, gaming and more. the music. These additional services not only make WeChat extremely sticky among its users, but they have also become new revenue streams for Tencent.

The result? A diversified and profitable technological conglomerate. Between 2004, the year of its IPO, and 2019, Tencent increased its revenue and net profit by a compound annual growth rate (CAGR) of 47% and 43%, respectively. It may seem like its business model runs the risk of making it jack-of-all-trades and master of none, but instead of doing it all on its own, Tencent has extensive partnerships (including holdings) with other companies. in fields including e-commerce and online food delivery. These relationships help to solidify its ecosystem.

A force that you may forget

Many investors are unaware that Tencent is possibly one of the best (if not the best) distributors of capital in the world. According to China Morning Post, Tencent had invested in around 700 companies over the decade ended 2019, many of which went public or became unicorns, private companies valued at over $ 1 billion.

Some of his best known investments are Pinduoduo, Meituan, JD, Sea Ltd, EPIC and Didi Games. Tencent owns more than 10% of each of these companies. It also holds minority stakes in leading companies such as You’re here, Break, Spotify, and Uber. As of June 30, these investments were worth approximately $ 77 billion.

These companies are leaders in their respective fields and Tencent stands to benefit as they continue to grow. With its cash flow coming in every year, Tencent will likely continue to invest in other companies in order to create value for its shareholders.

However, there is a risk that future investments will not be so successful. Therefore, investors should look for a potential misallocation of capital, especially if it ventures into areas well beyond its core competence.

Tencent as a long-term investment

Tencent is a rare combination of a large commercial operator and a successful capital distributor.

I think Tencent’s future is just as bright, if not brighter, than its past. It has enormous potential to expand its existing businesses in advertising, fintech, and healthcare, as well as grow its start-ups geared towards businesses such as cloud computing.

With a market capitalization of around $ 745 billion, Tencent is already a gigantic company. But in a decade it could be worth a lot more. It has a good chance of outperforming Apple thanks to its small size and proven capital allocation strategies.