TENCENT BIGGER THAN FACEBOOK? HERE'S WHAT'S NEXT
Industry Guest Post 012: Joost is co-founder and CEO of SuperData Research. As one of the first academics to study video games, Joost has over fifteen years of commercial research experience in interactive entertainment and creative industries. Today SuperData is a leading games industry researcher with clients such as Activision Blizzard, Apple, Electronic Arts, Google and Nexon.
In addition to his business adventures, Joost teaches video games economics at the NYU Stern School of Business. He lives in Brooklyn with his wife Janelle and son Maximus and can be reached at firstname.lastname@example.org
Tencent's Q3 earnings report certainly was impressive: the company earned $2.72B for the quarter, up 69%.
The big news is twofold: (1) Tencent the dominant Chinese social media platform broke through the symbolic barrier of $500B market cap, and (2) that made it more valuable than Facebook for a brief period.
But why stop there?
For one, Tencent currently controls the top of the global games market with a handful of incredibly successful titles. Last quarter, its online gaming revenue was $4.05B (+48% y/y). The acquisition of Riot Games and Supercell has been instrumental in this success, and the release of Honour of Kings has proven to be an equally explosive blockbuster.
Its marquee game titles — League of Legends, Clash Royale, Honour of Kings — make an absolute mint: over the last 12 months these three titles alone have generated $4.68B in revenues (year-to-date).
Critics have argued that the latter has yet to prove itself outside of the Chinese market. To that end, Tencent recently appointed former Take-Two Interactive’s CEO, Ben Feder, as the lead for its corp dev operations in New York. At the same time as it seeks to localize content to build out its market power in North America, it is also keeping its finger on the pulse for games to bring back to China.
Second, Tencent has been building a few key partnerships around the world. Staying with games for a moment, the firm has hitched onto Nintendo’s successful Switch release. With the Japanese console manufacturer pushing its device globally — selling around 8M units so far and expecting to sell ~12M by end of fiscal — Tencent is along for the ride with some of its key titles.
The firm knows that money talks. It’s made several key investments in Tesla, Snap, and Ola (India’s rival to Uber). And providing access to its 963m monthly active users on WeChat is an important part of its leverage in its dealing with outside content firms.
But the biggest growth opportunity says Tencent is user created videos and live streaming. Earnings from online advertising were up last quarter at $1.6B (+48% y/y) and contain an important clue for the firm’s future.
To grow its community’s effort behind making and sharing videos, Tencent is investing a sloppy $3 billion to cultivate what it calls ‘open media’ (user-generated content).
The growing popularity of gaming video content on YouTube and Twitch has undoubtely raised the obvious questions internally (“Why aren’t we doing this?”). Globally, around 666 million people watch gaming video content. In March last year Tencent invested $61M in Douyu, which pushed the company’s valuation north of $1B or more than the price Amazon paid for Twitch two years earlier. Today Tencent Video, the firm’s fee-based subscription service, counts 43 million users.
“Watching people playing games was boring, but now people like to see how people play games.” — Lin Songtao, Tencent’s vice-president.
Interestingly, this comes at a time when western video platforms Twitch and YouTube are transitioning from purely amateur videos of cats to more professionalize, and re-intermediated multi-channel networks. For many the realization has set in by now that Twitch and YouTube are get-rich-quick schemes no more. As the audience for live streaming and gaming video content has continued to grow, content creation has begun to necessarily professionalize. Tencent is looking to build on its success.
Despite its relative obscurity among western investors and media firms, at its current pace Tencent will soon be a household name globally.
Edit: Last week, I went on China Global Television Network to talk about Tencent and Facebook: