Tencent stays ahead of the game

Some big bets in mobile games have paid off for Tencent; it is now the No 1 player in the market

PUBLISHED : Monday, 07 April, 2014, 4:38am
UPDATED : Monday, 07 April, 2014, 5:11am

While its online finance, e-commerce and mobile messaging initiatives are closely watched by investors, Tencent has kept its focus on making large bets in its interactive games business to bolster revenue growth.

The strategy has allowed Tencent, Asia's largest listed internet company, to build up its pipeline of games and become the biggest company by revenue in the highly competitive, US$70.4 billion global games market. For Tencent, "games are still the crown jewels", CCB International analysts Ronnie Ho and Qu Ke said in a research note.

Hong Kong-traded Tencent's total online and mobile games revenue rose 34 per cent last year to a record 31.97 billion yuan (HK$40.1 billion) over 2012, fuelled by strong growth overseas and on the mainland - the world's second-largest games market behind the United States. Its sales are generated from virtual goods and services used by players to take on a game's advanced levels.

With no console games, Tencent moved ahead of perennial market leaders Microsoft, Activision Blizzard, Sony and Electronic Arts in total worldwide video-game sales for the first time last year, up from fifth in 2012, according to research firm Newzoo.

It is much less dependent on individual blockbuster releases
Peter Warman, Newzoo

"Tencent has shown very consistent quarterly revenue growth for a few years in a row, due to its focus on online free-to-play games and, more recently, mobile games. It is much less dependent on individual blockbuster releases than the traditional publishers," Newzoo chief executive Peter Warman said.

The Shenzhen-based company made its biggest ever video-game-related investment last month, with the acquisition of a 28 per cent stake in South Korean developer CJ Games for US$500 million. That deal tops what the firm has spent so far in the US on a pair of developers: US$400 million to take over Riot Games in 2011 and US$330 million to buy a 48.4 per cent stake in Epic Games last year.

CJ Games plans to use Tencent's investment to acquire Korean game distributor Netmarble and form a larger mobile games-focused company, CJ Netmarble.

Martin Lau Chi-ping, Tencent's president, expected the Korean developer "to bring more high-quality and enjoyable mobile-gaming experience to our user base" on the mainland and in overseas markets.

Founded in 1998, Tencent has released 12 mobile games through social platforms Mobile QQ and WeChat, known as Weixin on the mainland. We Fly, with more than 100 million users as of last month, is the most popular of these games.

While Tencent's shares recorded a two-month low of HK$512 on Friday as investors fear internet stocks are overvalued, the firm's prospects in the games market remain high.

"The company is the No 1 mobile games platform in China, with six games [each recording] over 10 million daily active users," the CCB International analysts said.

"Tencent will continue to pursue growth by expanding its mobile game portfolio with self-developed and third-party games."

The mobile market will make up US$22 billion of the US$111 billion worldwide video-game industry, which includes hardware and software, by 2015, according to research firm Gartner.

Tencent also has a current line-up of 12 so-called casual online games, led by the popular League of Legends, and 20 massively multiplayer online games, such as Blade & Soul.