Tencent’s (TCEHY - Free Report) decision to shut down its widely-popular mobile battle royale (BR) title PlayerUnknown’s Battlegrounds (PUBG) in China and replace it with a relatively unknown but government approved Game For Peace seem to have hit the right cord with the players.
Per Sensor Tower data, cited by Reuters, Game For Peace players have spent more than $14 million through in-game purchases within the first 72 hours of launch. This made the mobile BR title world’s top-grossing game on Apple's iOS app store. Moreover, revenues earned by Game For Peace was roughly six times of what PUBG earned in other countries over the same time frame.
Although gaming enthusiasts have pointed out the resemblance between the two games, Tencent stated that the two titles are from “very different genres.”
Notably, PUBG players’ gaming history and achievements were transferred to Game For Peace. The continuity feature is expected to be a major driver behind solid adoption of the title, which bodes well for Tencent’s online game revenues.
Per data from analysts at China Renaissance, quoted by Bloomberg, Game For Peace can generate 8 billion yuan to 10 billion yuan ($1.18 billion to $1.48 billion) in annual revenues.
Tencent shares have returned 22.8% on a year-to-date basis, outperforming the industry’s growth of 18.6%.
Tencent’s Game Revenues Hurt by Regulation
Despite PUBG’s mobile version having a huge player base in China, Tencent failed to gain government approval for in-app microtransactions, apparently due to concerns over gaming addiction. Moreover, Tencent’s PC-version of PUBG is yet to receive approval.
Notably, in August 2018, the Chinese Education Ministry announced plans to limit the number of online games and the amount of time kids spend playing on electronic devices. The ministry cited the measures as part of government’s effort to reduce eye-related problems in kids and adolescents.
Per TechCrunch, Game For Peace is available only to users above the age of 16, which suggests the impact of stringent government regulations.
Gaming approval in China was stalled for the majority of 2018 that negatively impacted notable developers like Tencent, NetEase (NTES - Free Report) and Bilibili (BILI - Free Report) . Notably, Tencent and NetEase are among the biggest game distributors in China.
These factors along with the lack of monetization opportunity from PUBG in China hurt Tencent’s online game revenues, which declined 1% year over year to RMB24.2 billion in fourth-quarter 2018.
Top-Line Growth Relies on Robust Portfolio
The success of Game For Peace reflects strength in Tencent’s gaming portfolio. Apart from Krafton (previously known as Bluehole), the developer of PUBG, the company has a stake in Fortnite-developer Epic Games. Notably, Tencent is also waiting for government approval to launch Fortnite in China.
Moreover, although PUBG Mobile shutdown in China is a setback, its growing popularity in international markets presents growth opportunity for Tencent. Notably, PUBG was recognized as the Best Game of 2018 by Google Play.
Additionally, Tencent in collaboration with Activision Blizzard (ATVI - Free Report) is set to launch free-to-play Call of Duty: Mobile later this year on both iOS and Android. Although the monetization strategy is yet to be unveiled, Call of Duty’s global popularity presents significant growth opportunity for the company in the long haul.
Tencent currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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