Can Tencent (0700) stop slide after shuttering Egaming unit?
19:08, 8 April 2022
Tencent Holdings (0700) stock traded down 3.35% on Friday after the technology entertainment conglomerate announced it was pulling the plug on its Penguin Esports streaming platform.
Tencent gaming platform character - Photo: Tencent Holdings Ltd. Citing a “change of business strategy,” Tencent announced it would no longer accept new user registrations starting midnight Thursday and all operations would cease at midnight on 8 June.
Shenzhen, China-based Tencent has seen its stock trade 33.5% lower since Chinese anti-trust regulators blocked the merger between two companies in which it had a controlling interest, Huya and Douyu. Had that merger been allowed to occur, Penguin Esports would have been folded into the combined entity’s operations.
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Tencent Holdings Ltd. (0700)
Virtual currency redemptions
“[I]t is with great regret that we announce Penguin Esports related products, including ‘Penguin Esports’ (including its web, App, PC, TV, H5, WeChat mini-programs) and ‘Penguin Esports Live Assistant’ (including its web, App, and PC) will be terminated,” the company said in a statement on the Penguin Egaming website.
Any earned gaming tokens or virtual currency in a user’s account will be refunded in the form of Q coins up to 7 June. “If the player does not participate in the compensation activities within the aforementioned period, it will be deemed to automatically waive the right to compensation/replacement,” Tencent added.
Regulatory scrutiny
Last July, China’s State Administration for Market Regulation (SAMR) blocked the Hyua and Douya merger, citing Article 28 of China’s Anti-Monopoly Law and Article 35 of the Interim Provisions on the Examination of Concentration of Undertakings.
“Tencent has a market share of over 40% in the upstream online game operation service market, ranking first,” the SAMR said in a statement at the time, noting the Huya and Douyu combined 70% share in the downstream game broadcast market.
“[T]he merger of Huya and Douyu will enable Tencent to independently control the merged entity, further strengthen Tencent's dominant position in the game live broadcast market, and, at the same time, give Tencent the ability and motivation to implement closed-loop management and two-way vertical blockade in the upstream and downstream markets.”
As previously reported, after the merger was blocked, Tencent stock hit a six-month low. And aside from a slight rally late last summer, its stock has still not recovered.
Tencent Holdings Ltd. (0700) 1-Year Performance
Tencent Holdings Ltd. (0700) 1-Year Performance - Photo: Tradingview
Tencent a metaverse player?
Tencent figures to be a major player in the evolution of the metaverse, noted Citigroup researchers in a recent research report titled, “Metaverse and Money,” along with Facebook/Meta, Google, Microsoft and Nvidia.
Citi researchers specifically cited Egaming as an entry point into the metaverse, saying “[t]he gaming industry is growing rapidly and the emergence of new economic models, such as play-to-earn, coupled with blockchain and the metaverse could likely have a significant impact.”
As a leader in the play-to-earn tokenised gaming model, located in the world’s most populous market, with significant barriers to foreign entry, Tencent’s metaverse plans include video games, social networking with programmable experiences and real-world virtual and augmented reality experiences.
“Play-to-earn gaming models give gamers ownership over in-game assets and allows them to increase their value by actively playing the game,” Citi researchers added. “The play-to-earn gaming model could help bridge the gap between players looking to earn extra income and those interested in playing the game.”
Big Tech in the Metaverse - Photo: Citigroup Global Perspectives and Solutions