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Tencent's Surge in Market Value Bolstered by New Game Release
Tencent Holdings Ltd. has seen a significant boost in its market value, driven by the successful launch of its new mobile game, Dungeon & Fighter (DnF) Mobile. The company’s shares have surged by 28% this year, adding an impressive $91 billion in market value, more than any other Chinese firm in 2024. This growth has been complemented by an improved regulatory environment and a stronger business climate in Tencent's primary markets.
Analysts Raise Price Targets and Earnings Estimates
Analysts have responded to Tencent's recent success by raising their price targets to the highest levels seen in two years. Earnings estimates have increased by more than 14% since the beginning of the year, reaching record highs. Options traders have also shown increased optimism, with the put-to-call ratio declining notably after the late May release of DnF Mobile.
According to Vey-Sern Ling, managing director at Union Bancaire Privee, "Capital inflows will go to Tencent first" due to the positive outlook in its gaming and advertising segments, which are both experiencing growth and increased market share.
Tencent's Gaming Sector Sees New Heights
Tencent's strong performance has made it one of the top players in the global gaming sector. Its shares have outpaced those of competitors such as NetEase Inc. and Nintendo Co. The success of DnF Mobile, which has earned over $270 million in just 30 days, has helped Tencent regain its position as Asia's second-largest stock, following Taiwan Semiconductor Manufacturing Co.
The launch of other highly anticipated games, including Honour of Fight and Squad Busters from its Finnish subsidiary Supercell Oy, has further fueled expectations. Goldman Sachs analysts have noted the importance of these launches and have subsequently raised their price target for Tencent by 17% since April.
A Supportive Regulatory Environment
Beijing’s supportive measures for markets and businesses, including the approval of DnF Mobile in February, indicate a more relaxed stance on the gaming industry compared to previous tightening. This change has been essential for Tencent, especially as the broader Chinese economy continues to face challenges.
Tencent's results have surpassed expectations, driven by its thriving short-form video and online advertising segments. The company's gaming business is set to benefit from a margin boost after it decided to withdraw DnF Mobile from Chinese Android app stores due to fee complaints. Additionally, Huawei Technologies Co. is reportedly considering a 20% commission on its Harmony mobile operating system, significantly lower than current industry standards. This move might pressure other Android app stores to lower their fees.
Morningstar Inc. senior equity analyst Ivan Su noted that there is a high likelihood that app stores currently charging up to 50% will reduce their rates to around 30%. The outlook for China’s gaming industry has improved due to a robust game pipeline and a more lenient regulatory approach.
Other Notable Tech News
In other tech developments, Nokia Oyj has agreed to acquire Infinera Corp. in a deal valued at $2.3 billion, including debt. Tesla Inc. has faced a decline in its quality ratings due to controversial design changes, while Amazon.com Inc. is set to launch its first batch of internet satellites by the fourth quarter, slightly delayed from the initial timeline.
