Tencent had the top two grossing smartphone games globally in recent months, among them ‘PUBG Mobile.’
Photo: Mahesh Kumar A./Associated PressThe world’s largest game company Tencent Holdings TCEHY 3.11% had a record quarter, but the U.S.-China geopolitical storm could cloud its outlook.
The company’s revenue rose 29% from a year earlier while its operating profit surged 43% for the quarter ended in June, both its highest ever and ahead of analysts’ estimates on S&P Global Market Intelligence. Games remain its money spinner; smartphone game revenue rose 62% from a year earlier. Partly that was against a lower base: Its smash hit “PUBG Mobile,” known in China as “Peacekeeper Elite,” was only approved for selling in-game items in May of last year after making tweaks to win over China’s censors. “PUBG Mobile” was among the top two grossing smartphone games globally in recent months, according to data firm Sensor Towers. “Honor of Kings,” also owned by Tencent, is the other one.
Growth will likely slow going forward as the boost from staying at home fades. Tencent’s stock hit a record last month as it was seen as a beneficiary of the Covid-19 pandemic. But an even bigger headache has emerged: The Trump administration issued an executive order that could ban transactions related to its social-media app WeChat, which has 1.2 billion users globally, last Thursday. It is unclear if the U.S. government could extend the vaguely worded order to Tencent’s other operations. Tencent’s stock has dropped 6.3% since the order.
The immediate financial impact may not be serious. WeChat has only around 2 million monthly active users in the U.S. and its direct revenue exposure in the country is less than 2%, according to Morgan Stanley. Most of that revenue came from games: 10% of revenue last month from “PUBG Mobile” was from the U.S., for example, according to Sensor Towers.
But being dragged into the U.S.-China geopolitical conflict will still be bad news for Tencent, which has so far been able to stay out. The company has invested in a large number of U.S. game companies such as Epic Games and Activision Blizzard, which has fostered cooperation in game development. Tighter scrutiny from Washington also will hamper Tencent’s ambitions to expand its game business outside of China. The company has a big portfolio of investments outside of games too, including stakes in Spotify Technology and Snap Inc. Goldman Sachs estimated its U.S. portfolio totaled $26 billion.
Tencent has mastered the political game at home. Playing on a wider board may prove more challenging.
Write to Jacky Wong at JACKY.WONG@wsj.com
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https://www.wsj.com/articles/tencent-will-struggle-in-the-greatest-game-of-all-11597232993
2020-08-12 11:49:00Z
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