Tencent on Uptrend After Possible Softening on Gaming by Regulators

The giant's gaming monopoly has been shaken over the past year - is Beijing finally softening its stance?
Aug. 04, 2021 20:43
Tencent on Uptrend After Possible Softening on Gaming by Regulators

Shares in Tencent Holdings Ltd. (OTC: TCEHY; HKEX: 0700) were on the rebound Wednesday, trading 4% higher, on the regulators' – reportedly – softened stance on video games.

The gaming giant hit its 52-week low of $55.77 per share in OTC trading last week as it took hit after hit from Chinese authorities clamping down on its independent tech giants. Now, the future may be looking brighter: State-run media including the People's Daily stressed on Wednesday the need for the parties involved to collaborate on the protection of kids from excessive gaming, as reported by Bloomberg.

That came as a turnaround from earlier reports. On Tuesday, the Economic Information Daily called gaming "spiritual opium." The medium specifically named Tencent's flagship "Honor of Kings" game. Tencent responded to the attack saying it would further limit minors access to its top video game – and saw increased sell-off volume on the news.

On a side note, the Economic's article was later edited with the words "spiritual opium" removed. Now, Chinese authorities have toned down their negative views through another medium.

Still, the recovery today seems bleak – Beijing has unleashed an intense crackdown on companies including Tencent and Alibaba Group (NYSE: BABA; HKEX: 9988). Tech giants were hit with anti-monopoly fines, scrutiny over cybersecurity, and even orders to divest some holdings.

Last week, Tencent suspended new sign-ups on the nation's app No. 1 – WeChat, used by 1.2 billion people for chatting, calling, paying, shopping, and other functions. Meanwhile, Tencent's music conglomerate, Tencent Music Entertainment Group (NYSE: TME), was forbidden to sign exclusivity deals.

Earlier, Tencent was refused the merger of China's top two game livestreaming platforms Huya (NYSE: HUYA) and DouYu (Nasdaq: DOYU). First announced last year, the deal was expected to reach the final stage over the past few months, but Beijing decided it went against its anti-monopoly practices. In mid-July, Huya and DouYu announced the State Administration for Market Regulation (SAMR) prohibited the merger, and the agreement was thus terminated.

On the gaming front, Beijing recently imposed stricter identity authentication for gamers to ensure the time limits for minors. Tencent is also dealing with a lawsuit started by an NGO, Beijing Teenagers Law Aid And Research Center, for allegedly "inappropriate" content in the "Arena of Valor."

Thus far, TCEHY shares are down 19% year-to-date, closing Wednesday at $59.14 apiece. In February, the stock peaked at $99.40 per share before jaggedly shifting lower to the 52-week low last week. Investors would hope it is the company's last such low of the 52 weeks – but uncertainty remains.

Beijing seems to seek out new reasons for attack in every industry in its antitrust campaign: These past few months have shown that the companies deemed "too big to fail" are the least safe from the watchful eye.

TCEHY, Tencent