[Overseas Stocks Spotlight] "Tencent, High Growth Expectations in Gaming Sector for 2021↑"

[Asia Economy Reporter Eunmo Koo] Tencent Holdings (0700.HK) reported third-quarter results that exceeded market expectations, and analysts predict strong growth in the gaming sector next year due to increased demand for untact services in China.

Tencent's third-quarter revenue reached 125.4 billion yuan, a 29.0% increase compared to the same period last year, and operating profit rose 84.7% to 44 billion yuan, surpassing market forecasts. In terms of scale, mobile games, which account for the largest share of revenue, grew 45% year-over-year, and the social networking services (SNS) segment also grew 29%, exceeding the consensus estimate of 123.9 billion yuan. In the VAS (Value-Added Services) segment, gaming and SNS revenues were 41.4 billion yuan and 28.4 billion yuan, up 45% and 29%, respectively, while fintech and online advertising revenues were 33.3 billion yuan and 21.4 billion yuan, recording increases of 24% and 16%.

Seunghoon Lee, a researcher at IBK Investment & Securities, explained in a report on the 28th, "Although the release of anticipated new games was delayed, the revenue growth from 'Wangzhe Rongyao' (Honor of Kings) and 'Huaping Zhengying' (Peacekeeper Elite) drove overall growth. The SNS segment maintained strong growth as the internet broadcasting platform 'HUYA' was consolidated, and paid memberships for music and video services increased by 46% and 20% year-over-year, respectively." He added, "Profitability improved significantly as gaming revenue rose, the advertising mix improved, and the number of paid subscribers for VAS exceeded 200 million."

Starting early next year, the release of major mobile games is expected to sustain strong growth in the gaming sector. The researcher noted, "Mobile games such as 'Dungeon & Fighter' and 'LOL: Wild Rift' are scheduled for release," and analyzed, "Although investment sentiment has been dampened recently due to financial and platform regulatory issues by the Chinese government, the growth momentum based on gaming and SNS remains valid."

Tencent is China's largest internet platform company, operating businesses in gaming, SNS, fintech, and online advertising. The gaming segment owns globally popular games such as PC's 'League of Legends' and mobile games like 'Clash Royale' and 'Wangzhe Rongyao' (Honor of Kings). The SNS segment provides services like the messengers WeChat and QQ, and the fintech segment, based on WeChat Pay, forms a duopoly with Alibaba.