Heard on the Street: Tencent's New Games Are Minting Money -- WSJ

Dow Jones2024-08-14

By Jacky Wong

China's Tencent, the world's largest gaming company, is still playing to win.

Revenue last quarter grew 8% from a year earlier, while operating profit increased 40%. Both beat consensus estimates, as compiled by S&P Global Market Intelligence.

While revenue growth is much slower than a few years ago, Tencent appears to be finding its footing after the recent Chinese regulatory crackdown. And encouragingly for investors, new games are off to a good start.

"Dungeon & Fighter: Origin," developed by South Korea's Nexon and published by Tencent in China, was the top-grossing title in the country for four straight weeks after launching in May. Industry tracker Niko Partners estimates it grossed $500 million in its first month. This is especially important since some of Tencent's chart-toppers, like "Honor of Kings," have been on the market for many years.

International gaming is providing another boost, especially from Finnish developer Supercell, in which Tencent bought a majority stake in 2016. Supercell's mobile game "Brawl Stars" hit a record for average daily active users last quarter and gross receipts grew more than tenfold year on year.

Despite all that, Tencent's game revenue last quarter grew only 9% from a year earlier. That is partly because revenue from mobile titles is usually recognized over time. Most make money by selling virtual items or currencies that will only be used in the future.

Tencent said gross receipts for both international and domestic games have outpaced revenue, meaning higher revenue should be expected down the road.

One measure to watch is deferred revenue, which indicates money that has already been collected but not yet booked as revenue. Tencent's deferred revenue in June totaled about $15.6 billion, some 25% higher than six months earlier.

After a terrible stretch, Tencent's shares have gained 25% this year, while the broader Hong Kong market is flat. Stronger growth in its core game business justifies the rebound.

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(END) Dow Jones Newswires

August 14, 2024 10:22 ET (14:22 GMT)

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Heard on the Street: Tencent's New Games Are Minting Money -- WSJ

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