What's going on?
On Wednesday, Tencent – Chinese internet conglomerate (and little brother to 50 Cent) – reported second-quarter earnings that were no fun and games.
What does this mean?
It doesn’t look like Tencent will be In Da Club anytime soon. The company reported a drop in profit, its first in nearly 13 years. Since January (when the stock price was at a record high), Tencent has lost around $170 billion in market value – that’s equivalent to the entire value of Disney.
Tencent’s been hit by Chinese video game regulators blocking sales of unreleased and existing games (like Monster Hunter: World, of which Tencent had pre-sold over a million copies). China has some of the world’s most stringent approval processes for video games and is in the midst of a havoc-wreaking licensing freeze – no new games have been approved for four months. Tencent can’t make as many dollars while it’s waiting on approvals – nearly 40% of its revenue comes from online games, and likely even more of its profit.
Why should I care?
The bigger picture: What China says goes.
China’s a market with notoriously tough rules – its video game regulation is an extension of its censorship of all online content (to which nobody’s exempt, not even Google). The country’s the largest gaming market in the world, probably making it worth the trouble – even with all the regulatory hoops. But there’s a reason for the Chinese versions of many Western companies – like WhatsApp and WeChat, Amazon and Alibaba, Netflix and iQiyi (not to mention Pied Piper and New Pied Piper) – China’s hard to please.
For markets: China’s a cool kid.
China’s hot for more than just games – everybody wants a piece of the world’s second-largest economy. American grocery retailer Kroger’s getting in via a partnership with ecommerce giant Alibaba. The king of ‘marts, Walmart, has opened a small supermarket in Shenzhen, and Starbucks is expanding its Chinese offering – rolling out a new store every 15 hours.