How Tencent Could Sidestep China Stress



Tencent dependent on the Chinese market

When it released its second-quarter results on August 15, Tencent (TCEHY) said it was exploring several initiatives to stimulate growth. The company noted that it was exploring the idea of launching its popular games in more international markets.

According to Eikon data cited by Reuters, Tencent is heavily dependent on the Chinese market, as only 5.0% of its revenues came from international operations in 2016. This is the latest available data on the company’s international business.

Article continues below advertisement

Wakeup call for Tencent

The Chinese government is intensifying its crackdown on the online gaming industry in the country as part of the efforts to curb Internet addiction among its young citizens. This push might be a wakeup call for Tencent to accelerate international expansion to diversify its risk at home. In addition to not being able to launch new games due to a freeze on new game approvals in China, Tencent has also seen approval for some of its games rescinded.

Tencent’s main business is video game publication. Spending on games is forecast to increase 13.3% this year to reach $137.9 billion, according to Newzoo.

According to Newzoo data, Tencent generated $18.1 billion in revenues from game sales in 2017. Sony (SNE), Microsoft (MSFT), and Activision Blizzard (ATVI) generated $10.5 billion, $7.1 billion, and $6.5 billion, respectively, in game revenues in 2017.

Partnering with Google

Beyond games, Tencent is also engaged in the mobile payment and cloud computing businesses, which it might want to expand overseas. Its rival Alibaba (BABA) has been working to drive adoption of its Alipay mobile payment service by Chinese tourists traveling overseas.

Martin Lau, Tencent president, told analysts in August that the company was working on collaborating with its international partners. Tencent and Google (GOOGL) have reportedly discussed partnering on a cloud computing program.


More From Market Realist