Published: Fri, August 17, 2018
Tech | By Anita Cain

Asian gaming stocks tumble as China halts license approvals

Asian gaming stocks tumble as China halts license approvals

Chinese technology giant Tencent Holdings Ltd has "no clarity" on when it may get approval to start charging for its most popular game, it said on Wednesday, after reporting its first quarterly profit fall in almost 13 years on weak gaming revenue. China surpassed the become the world's largest game market in 2016 and many American, Japanese and Korean game publishers rely on Tencent to distribute their games in the country.

While a company as large as Tencent will nearly certainly be able to withstand the freeze, a more pressing concern is smaller developers will have to close if the freeze continues.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. The Shenzhen-based company relies on new content to draw and keep users on its WeChat messaging service, over which it sells in-game items and advertising to a billion-plus users.

Revenue rose 30% to 73.68 billion yuan in the latest quarter, lagging 16 analysts' average estimate of 77.5 billion yuan.

While there is a "green" process that enables the company to test monetization of games, that won't apply to PUBG because of its sheer scale, Lau said.

The Chinese regulatory agency in charge of vetting foreign games for un-socialist values has frozen its examinations, and in the process, stands to block dozens of big-name games -mostly distributed by Tencent- from entering the world's biggest video game market. The company derived a third of its revenue from games in the last quarter, down from 56 percent in the second quarter of 2014.

Lau said that interest accounted for a "low teens" percentage of revenue at its "others" business category which totaled 17.5 billion yuan in the June quarter, with the centralized deposit ratio raised to 52 percent in July from 42 percent in April.

"Tencent's gaming business did even worse than expected", said Li Yujie, an analyst at RHB Research Institute in Hong Kong.

But there's a big problem we are only now learning about: the Chinese government has stopped approving new game licenses, and it hasn't done so for months. That represented the slowest quarterly revenue growth since the second quarter of 2015.

"The regulatory headwind is definitely having a toll" on Tencent's gaming revenue, said John Choi, an analyst at Daiwa Capital Markets, noting that the company has not been able to monetize a key title such as PUBG.

The pace of the company's investment is also slowing.

Holding up earnings this past quarter has been the company's inability to make money in China off Player Unknown Battleground, commonly called PUBG, a popular game that pits players against one another in a battle to the death on an island covered with weapons, vehicles and sniper nests.

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