Tencent was one of the ten largest global companies according to market capitalization. However, China’s crackdown on video games has dropped it off the top ten.
As a result of the Chinese government’s campaign, shares of Tencent are down around 40% from the peak last year. Further, the huge slide translates to a little over $230 billion in lost shareholder value.
Tencent Off Top Ten
Tencent Holdings is a computer game giant with thousands of titles under its belt. The company generates most of its revenues from game sales. As a result of a freeze on approval of new titles, Tencent reported the first profit decline in 13 years. Particularly, the freeze on the approval of new titles is part of a restructuring of the Chinese media landscape. Interestingly, the Chinese government seems to want to have more control on the content of the video games.
This week alone Tencent lost more than 2% on the Hong Kong Stock Exchange. Particularly, the drop is a reaction to the reports that China might not approve any new titles soon. The stock’s fall is also a result of the broader sell-off in global tech stocks.
Market Volatility, Rising Interest Rates
In particular, the sell-off is partly as a result of the ongoing trade war between China and the United States. Overall, Tencent might report a 20% fall in earnings for Q3 2018, a research note from Daiwa Capital Markets says. Analysts at Daiwa Capital Markets believe investors might be abandoning the tech stocks for safer stocks. Particularly, most stocks like the utilities, banks and drugmakers promise big dividends and safety. This is because they are not likely to get badly hit by the ongoing market volatility, especially rising interest rates.
Tencent seems to have wider problems in addition to the gaming business. Another Tencent business, WeChat, received a blow in August this year after it moved to shut out crypto-related content.
Campaign Against Crypto
As CryptoCoinReporter explains, WeChat is one of the most popular messaging giants in China. Particularly, it obtains most of its revenue from the activity on the platform. At the height of cryptocurrency hype, most of the revenue came from the traffic generated by cryptocurrency enthusiasts. Therefore, the banning of crypto-related accounts substantially cut down the traffic. According to the publication, the bans are part of the wider campaign to discourage use of crypto in China.
“So far, according to reports coming from China, the government has shut down at least eight crypto-related online media outlets. The campaign intensified when the pressure on the messaging app WeChat culminated in shut-down of accounts. The regulations target accounts that peddle blockchain-related news,” the CryptoCoin reporter explained.
China’s crackdown on video games will likely affect the company’s profits for some time. The company might also suffer if interest rates keep climbing and the China-US trade war escalates.