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$TCEHY & the gaming crackdown in China.
One of the main reasons for Tencent’s 40% share price decline since February, is the CCP’s crackdowns on the gaming industry.
$TCEHY & the gaming crackdown in China.
One of the main reasons for Tencent’s 40% share price decline since February, is the CCP’s crackdowns on the gaming industry.
1/
The crackdown includes a restriction for all minors ‘under 18’ being limited to only 3 hours of playing video games per week.
They have 1 hour on Friday, Saturday & Sunday between 8-9pm, which is being monitored by a face scan from gaming companies such as $TCEHY
The crackdown includes a restriction for all minors ‘under 18’ being limited to only 3 hours of playing video games per week.
They have 1 hour on Friday, Saturday & Sunday between 8-9pm, which is being monitored by a face scan from gaming companies such as $TCEHY
2/
At first, this seemed like horrible news for Tencent and the media has loved to make it seem that way.
However, after taking a deeper look I think the impact to $TCEHY is actually quite minimal.
At first, this seemed like horrible news for Tencent and the media has loved to make it seem that way.
However, after taking a deeper look I think the impact to $TCEHY is actually quite minimal.
3/
$TCEHY reported that only ~6% of revenues come from minors.
But let’s be more pessimistic & assume there are accounts lying about their age. Let’s say ~20% of gaming revenue from China is being completely removed.
20% is likely a huge overstatement but let’s roll with it
$TCEHY reported that only ~6% of revenues come from minors.
But let’s be more pessimistic & assume there are accounts lying about their age. Let’s say ~20% of gaming revenue from China is being completely removed.
20% is likely a huge overstatement but let’s roll with it
4/
79% of gaming revenue in 2020 came from China. So 21% of those revenues are not impacted.
~36% of Tencent’s total revenues come from gaming.
So if we take ~$82B (USD) LTM revenues for Tencent. $29.5B came from gaming. $6.2B of which was outside of China.
79% of gaming revenue in 2020 came from China. So 21% of those revenues are not impacted.
~36% of Tencent’s total revenues come from gaming.
So if we take ~$82B (USD) LTM revenues for Tencent. $29.5B came from gaming. $6.2B of which was outside of China.
5/
Therefore ~$23.3B of revenues is being impacted by the gaming crackdown from the CCP.
If we take the overly pessimistic 20% number away, that is $4.7B of revenue lost.
If Tencent 6% number is accurate, then it’s only $1.4B.
Therefore ~$23.3B of revenues is being impacted by the gaming crackdown from the CCP.
If we take the overly pessimistic 20% number away, that is $4.7B of revenue lost.
If Tencent 6% number is accurate, then it’s only $1.4B.
6/
so if Tencent’s reported number is accurate then the crackdown impacts just 1.7% of total revenues.
Being overly pessimistic and taking the adjusted 20% of China gaming revenues being minors, then 5.7% of total revenues are impacted.
so if Tencent’s reported number is accurate then the crackdown impacts just 1.7% of total revenues.
Being overly pessimistic and taking the adjusted 20% of China gaming revenues being minors, then 5.7% of total revenues are impacted.
7/
it’s also important to note that a large portion of the gaming investments in Tencent’s portfolio don’t contribute to revenues and are outside of China.
it’s also important to note that a large portion of the gaming investments in Tencent’s portfolio don’t contribute to revenues and are outside of China.
8/
Overall, the gaming regulations have barely put a dent in the intrinsic value of $TCEHY.
Of course it’s unwanted, but with only 1-5% of revenues being impacted whilst they have a 20-30% CAGR and an investment portfolio worth $200B+ .. it barely hurts the business.
Overall, the gaming regulations have barely put a dent in the intrinsic value of $TCEHY.
Of course it’s unwanted, but with only 1-5% of revenues being impacted whilst they have a 20-30% CAGR and an investment portfolio worth $200B+ .. it barely hurts the business.
9/ disclosure: long $TCEHY
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