Tencent Shares Have ‘Priced in’ Gaming Crackdown, Jefferies Says

(Bloomberg) -- Further clampdowns on online gaming have been baked into Tencent Holdings Ltd.’s shares and the company stands to benefit from potential unlocking of gaming patents, according to Jefferies.

Tencent has been a key victim of China’s unprecedented crackdown on its tech sector, with its shares down nearly 40% from a record high in January. Jefferies maintains its buy rating on the stock and expects a 16% revenue growth in the third quarter.

Concerns regarding minors’ gaming hours and the impact on ads from education-focused regulations are “priced in,” analysts including Thomas Chong wrote in a note Thursday. Rising ad demand from the Winter Olympics in China could offset the lost revenue from some edutech firms, they said.

Shares of the Shenzhen-based tech giant have soared 6.5% in the last two days, after snapping a five-day rout as part of a broader growth stock selloff amid rising yields. Restrictions on gaming time and regulatory scrutiny of ads have battered the stock, which was briefly kicked out of the world’s 10 largest companies by market value in September.

Adding to the share momentum in the last two days is Tencent’s hotly anticipated League of Legends Mobile that was launched Friday, almost a month after its initially scheduled release. Tencent said the delay for the marquee title was because “it needed to improve the gaming experience.” 

The shorter-than-expected delay was “positive relief,” Citigroup Inc. analysts including Alicia Yap wrote in a note. The brokerage added that while proceeds will unlikely add much grossing contribution in the fourth quarter, it could support domestic gaming revenue growth into 2022.

Tencent is expected to report earnings on Nov. 10.

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