Tencent, Netease Still Frozen Out as China Approves Latest Games

(Bloomberg) -- Tencent Holdings Ltd. and Netease Inc. were again left out when regulators green-lit the latest batch of online games, spurring concern that China’s largest gaming companies may have to wait longer than anticipated to start making money off hit titles.

Neither company appeared on a list of 93 domestic games approved for licenses in January and were also absent from 164 cleared in December, ending a nine-month freeze. Smaller rivals, including Shanghai-listed Jiangsu Phoenix Publishing & Media Corp. and Shenzhen-listed Sanqi Interactive Entertainment, made the cut instead, according to notices posted by the State Administration of Press, Publication, Radio, Film and Television.

Tencent’s pipeline has been on ice since March, when regulators halted the release of new titles in the world’s largest gaming market. That crippled the gaming giant’s ability to make money from its biggest hits-- PlayerUnknown’s Battlegrounds and Fortnite. The company shed more than $200 billion in market value at one point in 2018, leading losses in Chinese gaming shares. On Tuesday, Tencent’s stock slid as much as 2.4 percent.

“It was quite surprising Tencent wasn’t included. People thought Tencent might have had a chance this time,” said Sean Lee, a Taipei-based fund manager at Shin Kong Investment Trust Co. He added he might sell some shares in Tencent, one of his largest portfolio holdings as of December’s end.

Regulators are now working through a backlog of thousands of games that accumulated in 2018. Tencent, which distributes its own games as well as titles from external studios, is said to be cutting its marketing budget for games to help tide it over. Developers that supply the company include Capcom Co., Nexon Co., Activision Blizzard Inc. and Electronic Arts Inc., according to data compiled by Bloomberg.

Other investors remain optimistic the worst is over. Hiroki Lu, a Taipei-based fund manager at SinoPac Securities Investment Trust, sees Tencent rebounding as much as 20 percent to his target of HK$400.

“Tencent will eventually get licenses,” he said. “The approvals have already started this year at least, so it can’t be as bad as last year.”

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