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Tencent (OTC: TCEH.Y) It recently suffered a major setback when PUBG Corporation, which licenses its Battle Royale franchise of the same name to the Chinese tech giant, cut ties with the company in India.
India’s government recently banned 118 Chinese apps, including Tencent’s PUBG mobile, in response to escalating military tensions between the two countries. More than 400 million people play PUBG mobile around the world, and more than 50 million of those players were in India.
Image source: PUBG Corporation.
PUBG Corporation, owned by the South Korean company Krafton (formerly known as Bluehole), probably wants to distance itself from Tencent to regain access to the Indian gaming market. PUBG plans to take on all publishing responsibilities for PUBG mobile in India, but it is unclear whether the change will satisfy Indian regulators as Tencent still owns an 11.5% stake in Krafton.
Regardless of what happens, the sudden loss of a blockbuster game in one of its fastest growing markets poses a problem for Tencent’s overseas ambitions.
How much PUBG mobile Does Tencent care?
PUBG mobile was the world’s highest-grossing smartphone game in 2019, according to Sensor Tower, beating Tencent’s Arena of Valor (also know as Honor of kings in China) for the first time. The research firm estimates PUBG Mobile revenue increased 652% to $ 496 million during the year.
Tencent does not break down its revenue by individual game, but Sensor Tower’s estimate would be equivalent to only 0.9% of Tencent’s total revenue in fiscal 2019. Thus, Tencent’s loss of PUBG mobilePlayers in India will not significantly reduce their total revenue, which is diversified across its online gaming, social media, digital advertising, cloud and fintech units.
Sensor Tower’s estimate also does not include Peacemaker Elite, the reskinned version of PUBG mobile which replaced the original in China after regulators prevented Tencent from monetizing the game last year. Peacemaker Elite, which featured more “patriotic” themes, was approved for monetization and remains one of Tencent’s most popular games in China.
But this could be the tip of the iceberg
PUBG’s sudden divorce from Tencent in India attracted a lot of attention, but it’s really just the tip of the iceberg. The other great game from Tencent, Valo Arenar, and its WeChat messaging platform also started from India.
Image source: Getty Images.
Before the political crisis, Tencent had increased its investments in India with stakes in the e-commerce platform Flipkart (now owned by Walmart), the Ola app, the Gaana music streaming site, and the NewsDog news aggregator. It also saw India as a key growth market for its gaming and esports ambitions.
Those investments, along with Tencent’s extensive overseas investment portfolio, laid the foundation for its expansion beyond China, where it faces stricter censorship laws and playing time restrictions for its games.
They also helped Tencent keep up Alibaba (NYSE: BABA), which owns stakes in Indian companies, including payments firm Paytm, its e-commerce platform Paytm Mall, food delivery company Zomato, and online grocery store BigBasket. However, Alibaba’s main proprietary apps, including Alipay and Taobao, were also blocked by India’s blanket ban.
Other countries could follow the example of India
Tencent probably wouldn’t be overly concerned if its troubles were limited to India. However, the Trump Administration also plans to block WeChat in the US on September 20 due to national security concerns.
That ban won’t significantly affect Tencent’s business either, as the majority of WeChat users are based in China. But that ban could expose Tencent’s US subsidiary Riot Games, which makes the hit game. League of Legendsand your investments in US companies, including Epic Games, Snapand Activision Blizzard – to stricter regulations.
Other countries have yet to follow India and the US to ban Tencent apps. But if tensions continue to rise between China and the rest of the world, we could see other countries end Tencent’s overseas expansions of its gaming, cloud and digital payments businesses.
The key findings
On your own, the loss of PUBG mobile in India or WeChat in the US will not derail Tencent’s impressive growth as it only generated 4% of its revenue outside of mainland China last year. However, investors should be on the lookout for other bans in the future, which could strangle their fledgling international business and break their relationships with partners abroad.
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