Tencent doubles down on investment following profit jump

Profits for the first quarter of the year for Tencent, China’s biggest social media and gaming company, soared 65% in the first quarter rising to $7.4 billion on revenues of $21 billion. And there is no sign of a let-up in the company’s hyper-aggressive acquisition and investment programme. 

Video games analysts Niko Partners reported earlier this month that Tencent had already closed 51 video-game related deals in 2021, surpassing the 31 deals closed for the whole of 2020.

It lists three key reasons for Tencent’s even more aggressive investment approach in 2021:

• A number of games released in 2020 from smaller publishers, in which Tencent had no stake, became huge hits, and that makes those developers a threat. Publisher miHoYo’s game Genshin Impact, for example, was a hit around the world, grossing $1.5 billion. And Lilith Games launched AFK Arena and Rise of Kingdoms in China, both of which outperformed Tencent’s games in the same genre.

• Even though China represents the world’s biggest gaming market, with mainland China players representing 33% of global revenue, Tencent has eyes on a global prize, and has said it wants to have half its players overseas. It still has some way to go, however, as just 21% of its total revenue in 2020 was from markets outside China. Mobile accounts for most of the growth, but Tencent estimates the PC and console market to be worth over $70 billion outside China, as well as there being room for growth within China.

• Other giants of China’s tech world are challenging, notably Alibaba and ByteDance. Alibaba became number four mobile game publisher in China last year and its upgraded games division has become an independent group alongside the company’s entertainment division. ByteDance has had great success with the short-video app TikTok (Douyin in China) and has now moved into games, setting up various publishing labels and hiring almost 3,000 staff to work on games.

Key quote

“We are stepping up our investment in areas including business services and enterprise software, high-production-value games, and short-form video” – Tencent CEO Pony Ma Huateng

Sourced from Niko Partners, SCMP