Tech stock scrutiny amidst WeChat and TikTok ban and streaming mergers

The past two weeks have certainly been interesting at the intersection of technology, governments and gaming, even more so if you have any interest in technology or gaming stocks.

US President Trump has effectively banned WeChat and TikTok. Tencent (owner of WeChat) the massive Chinese entertainment company, through its holdings, is a major player in the gaming and esports industry. The ban gave US gamers credible cause for concern.

Tech stock scrutiny amidst WeChat and TikTok ban and Streaming Mergers

© Tencent

Situation report

Tencent’s profits are on the rise and a proposal to consolidate streaming sites Douyu and Huya also has investors excited about the future of all three companies. Let’s take a look the past week’s moves and shakes:

Trump’s bans caused immediate concern for gamers and the gaming and esports industry. Tencent is the world’s largest gaming and entertainment company by revenue. The company directly owns a number of key brands and titles such as PUBG and Call of Duty. It has a 40% stake in Fortnite publisher’s Epic Games. It also owns Riot Games, the publisher of League of Legends and new sensation Valorant, outright. Tencent’s involvement in the world’s hottest esports titles doesn’t stop there. To name more, it has partial holdings of Activision Blizzard and develops mobile titles such as Honor of Kings.

The implications so far don’t appear to stretch to popular titles like League of Legends, Valorant and Fortnite. So why the concern after the announcement of the TikTok and WeChat ban?

Well, the presidential executive order banning WeChat held some vague connotations that could be interpreted as affecting other elements of Tencent’s gaming empire. The Trump administration, as per Los Angeles Times reporter Sam Dean, later clarified that the executive order which comes into force in 45 days is not planned to affect other Tencent games and platforms. Reporter Dean tweeted:

“White House official confirmed to the LA Times that the EO only blocks transactions related to WeChat. So Riot Games (League of Legends), Epic Games (Fortnite), et al are safe. So no, games like League of Legends, Valorant, and Fortnite will not be impacted when this executive order take effect in 45 days.”

Then, on Wednesday, Tencent revealed profits in excess of expectations, the equivalent to $16.5 billion for the second quarter of 2020, up 28% on the same period in 2019. During its earnings call with investors, Tencent executives commented on Trump’s WeChat ban, stating that it does not appear to affect Weixin which is the Chinese version of WeChat and which has even more users. Tencent also addressed concerns that its gaming businesses in the US would be affected saying it was seeking clarification. Shek Hon Lo, the company’s chief financial officer told investors:

“Based on our initial reading and subsequent press reports, the executive order is focused on WeChat in the United States and not our other businesses in the United States.”

Time to invest?

Tencent also affirmed that its revenue from the US is less than 2% of its total earnings.

Meanwhile, China’s leading streaming sites, Huya and DouYu could merge under Tencent’s mentorship. Tencent, as of early 2020, owns 50.1% of Huya. It also owns 37% of DouYu’s shares after this company, China’s top streaming site, became the country’s largest Wall Street IPO in 2019. Tencent is pushing for this streaming merger, which could see the two platforms combined control 80% of China’s streaming market. The merged pair would encompass an estimated 300 million monthly streamers and esports fans.

Such a deal could also facilitate the growth or prospects of Tencent’s own eGame streaming site and allow Tencent to consolidate its position against TikTok owners ByteDance. ByteDance is developing its own gaming platform currently. It’s also worth noting that Huya’s parent company is also the developer of Likee, a serious competitor to TikTok. And, Tencent has shares of video services platforms Bilibili and Kuaishou.

Tencent’s shares felt the burden of Trump’s ban, with the company losing an estimated immediate $35 billion in value. But Tencent’s stocks did rise in price by 2.5% on Wednesday after its earnings release and assurances to investors. Reports of the potential merger of Huya and DouYu sent the stocks of these companies sailing higher immediately after, by around 12% and 14% respectively.

It’s not all discord for Tencent and the US either. There’s now a special skin in Tencent’s mobile game, Peacekeeper Elite, for electric car-maker Tesla. This is a partnership between the two companies designed to promote Tesla’s brand in Asia. Unsurprisingly, Tencent also has a 4% holding in Tesla.

Whether you’re an esports fan, player, or an esports stocks investor, these technology and gaming industry shifts and influences are certainly on your radar. Tencent’s massive stake in global gaming and esports just cannot be ignored, even if you simply want to know what the next best esports title or streaming platform could be.

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