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Stock investors are betting that Chinese Internet-search company Baidu Inc. will benefit from the expected closure of Google Inc.'s Chinese Web site. But another, larger, Chinese Internet company may also stand to benefit if Google goes: Tencent Holdings Ltd.
Tencent may be the biggest Internet company most people outside China have never heard of. It boasts hundreds of millions of users for its instant-messaging service, which it has leveraged to build other fast-growing businesses.
It has a market capitalization of more than $38 billion, bigger than Yahoo Inc. and almost twice the size of Baidu -- even after Baidu's shares have risen nearly 50% since Google's Jan. 12 announcement that it might close its China site, Google.cn.
And Tencent is developing its own search engine that could enable it to take advantage if Google closes Google.cn, as expected, within weeks.
On Wednesday, Tencent said its fourth-quarter net profit rose 74% from a year earlier to 1.51 billion yuan ($221.2 million), boosted by strong growth in its online-games and social-networking services. Revenue rose 76% to 3.69 billion yuan. For the year, Tencent had revenue of about $1.8 billion.
Co-founded in 1998 by Chief Executive Ma Huateng, who sometimes goes by the English name Pony, Tencent is best known for its flagship product, the instant-messaging program QQ.
Analysts estimate that more than 70% of China's roughly 400 million Internet users -- the largest such population in the world -- use instant messaging and that about 80% of those people use QQ. Tencent says it had 523 million active QQ user accounts at the end of last year, but that includes people who have multiple accounts.
Tencent previously used Google for search services on its site, but it dropped Google's technology last year and began to develop its own search engine, called Soso (which sounds like 'search search' in Chinese).
Soso was ranked fourth in China's Internet-search market in the fourth quarter of 2009, with less than 1% of total industry revenue, behind Baidu, Google, and Sohu.com Inc.'s SoGou service but ahead of Microsoft Corp.'s Bing search engine.
Google said Jan. 12 it planned to stop obeying Chinese-government requirements to censor the results on Google.cn, a move that will almost certainly require the site to close. Google cited concerns over tightening limits on expression and a series of cyber attacks from China against foreign companies.
Tencent may not be poised to pounce quickly on Google.cn's departure. The Chinese company has acknowledged that its search technology isn't ready to compete with established search engines like Baidu.
The relevance and ranking of search results are enhanced by high volumes of user traffic, so it can take time to improve.
A Tencent spokeswoman didn't respond to requests for comment Wednesday.
Still, Tencent is beefing up investment in new products. Mr. Ma, in discussing Tencent's latest results Wednesday, said the company 'will continue to increase investments in research and development, technology and branding in the coming years but will incur significant costs and may even have to forgo certain revenues.'
He didn't specify Soso, but Tencent executives in the past have described the search project as a key initiative.
If it invests enough, 'Tencent could be a strong competitor to Baidu,' given Tencent's 'massive user-base and solid brand,' says Fang Li, an analyst for research firm Analysys International.
Baidu hasn't commented on Google's possible departure, but the company has said it will continue to focus on its 'core strengths in Chinese search technology.'
Tencent has a strong track record in launching new products. With its logo -- a winking cartoon penguin wearing a red scarf -- QQ is especially popular among Chinese youth. Tencent has capitalized on the service's ubiquity by adding other offerings, many of which have proven lucrative.
Users pay real money to buy QQ coins, Tencent's virtual currency, which they exchange for things like virtual flowers they can send through QQ, or cellphone ringtones or virtual weapons for online games.
QQ coins became so popular that people began exchanging them for real-world goods, prompting the government last year to ban such transactions.
Tencent also has leveraged QQ to develop a range of online games, an online music service, social networking and e-commerce. Games contributed 40% of Tencent's revenue last quarter. In addition to the sale of virtual items, it earns revenue from advertising and subscription fees.
QQ enables to Tencent to use 'the power of the buddy list,' says Duncan Clark, chairman of consulting firm BDA China. 'They have a captive audience, right there.'
Mao Lan, who works at a securities company in Beijing, says she uses QQ on-and-off for more than ten hours a day, at work and at home, for instant messaging, online video conferences, file transfers, picture editing, and games.
Ms. Mao sometimes uses Tencent's Soso but says Baidu is still a better search engine. 'But I will definitely [use Soso] more in the future,' she says.
Tencent has outdone some major competition in the past. State-owned China Mobile Ltd., the world's biggest mobile carrier by number of subscribers, launched its own instant-messaging service, called Fetion, in 2006. It was widely seen as a move to compete with QQ, which is also used on mobile phones.
But Fetion had just 6% of China's registered instant-messaging users as of last quarter, according to Analysys.
Tencent's consumer-to-consumer online-trading platform ranked second in China last quarter, with a 10% share of total transactions, behind the Taobao.com service owned by Alibaba Group, another fast-growing Chinese Internet company.Loretta Chao