The Chinese government started to crack down on consumer usage of video games by freezing the licenses for creating and introducing new games onto the market.
Since January 2018, Tencent has shed around $230 billion in market value, which is approximately 40%. IN the last week alone they fell a further 2% due to the new government crackdown.
Until recently, Tencent was one of the worlds top 10 company’s in terms of value, but as of today its valued at no 11 and this is exceptional when only in March it was no 5 in the list of top ranking companies in the world.
Tencent is known for massive investment, and it pumped billions into over 300 companies and continues to do so at an ever-increasing rate. With its exponential growth comes exponential risk, and this new Chinese government crackdown is a very basic risk to consider and mitigate.
Essentially, Tencent is an online gaming titan, but the Chinese government has decided to cut down on issuing new licenses allowing companies to make money from online games. As this is the core of Tencent’s existence, it is obvious that the blow is critical and even morbid.
Add to the fact that China is the world’s largest gaming market, and you understand how this new crackdown is seen by investors. The uncertainty In the market is being fueled by speculation, and currently analysts at investment bank Daiwa Capital Markets stated that they foresee a further 20% drop in Tencent’s revenue from mobile gaming for the third quarter of 2018.
Considering that Tencent owns China’s leading messaging platform WeChat, concerns are rife and continue to fuel fears, especially since China’s Education Ministry announced in August that it would “control” how many new games come online, as well as review and consider setting up a censor system for reminding users which games are appropriate for different ages. The future of Tencent is wobbly to say the least.
If the government changes the way it regulates the gaming world in China, and Tencent integrates this into their corporate structure, then the future will turn around, and we expect that Tencent will recover its losses in value.
The bottom line is: when do we buy into Tencent stock? Some analysts say now, but who really knows when the best time arrives, what we do know is that Tencent remains silent.