Reflecting on Tencent’s 2020

Tencent turned 2020 into a record investment year with 29 gaming-related deals (so far!). 20 of these deals are China-based companies and 9 are international studios. Contrary to public perception, this amount of activity is actually new for Tencent. Since 2005, Tencent has on average invested in less than 10 gaming-related companies annually. Before we get into the analysis regarding such a strategy shift, here’s the investment breakdown for the year:

GenreDateCompany NameInvestment SumCountry
PC / ConsoleJanPlatinum GamesundisclosedJapan
PC / ConsoleJanFuncomUSD148m AcquisitionNorway
PlatformFebBilibiliIncreased holdings to 18%China
PC / ConsoleFebYager DevelopmentUndisclosedGermany
All PlatformsFebRobloxSeries GU.S
All PlatformsMayMarvelous20% Share for (HKD500m)Japan
MobileJun凡帕斯Acquired 31.25% for RMB450kChina
All PlatformsJulCentury Huatong (Shengqu’s Parent Company)Increased stake to 5% at RMB200mChina
Live StreamingAugHuyaUSD810mChina
All PlatformsAugLeyou TechUSD1.4b acquisitionHong Kong, China
MobileSept云畅游戏 Yunchang GameAcquired 15% shareChina
CloudSept动视云科技 51iasAcquired 21.75% for RMB40mChina
PC / ConsoleOct10 ChambersMajority StakeSweden
EsportsOctVSPNSeries BChina
MobileOct元趣娱乐 Connecting Happiness10.71% stake at RMB120kChina
Mobile / PCOct纳任信息20% stake at RMB1.6mChina
MobileOct暖域科技20% stakeChina
PC / ConsoleNovLockwood PublishingUSD25m investmentUK
WebNov无端科技 Wizard GamesUndisclosedChina
MobileNov七号笔迹30% stake for RMB2.55mChina
All PlatformsNov网元圣堂 Wangyuan20% stake for RMB2.88mChina
Mobile / PCNov水果堂 Fruits Game27.8% stake for RMB105kChina
All PlatformsDec润梦网络科技19.25% stake for RMB850kChina
MobileDec阿佩吉网络10% stake for RMB136kChina
MobileDec影之月信息科技14.5% stake for RMB1.05mChina
PC / ConsoleDec钛核互动 Tai Games39% stake for RMB333kChina
MobileDec炎央文化15% stake for RMB780kChina

Tencent’s international PC/Console strategy is fairly straightforward — take an existing PC IP with global appeal, broaden the company’s insights, and often turn it into a mobile game for broad distribution. This is a proven route for Tencent following the playbook of PUBG, League of Legends, and Counter Strike. We could likely see DayZ Mobile, The Cycle Mobile, and more in the coming years.

Interestingly, Tencent’s accelerating investment activity primarily revolves around increasing the number of early stage deals. In the past, most of Tencent’s deals were executed very methodically and focused on industry leaders (like Supercell, Riot Games, and Epic Games). However, 2020’s deals are more focused on early stage companies, plus niche genres, and were seemingly executed with greater speed. What changed?

One explanation floating around Chinese media points to Genshin Impact. Genshin Impact by Mihoyo not only burst onto the scene and immediately became a global top grossing game, but Mihoyo also completely circumvented Tencent’s ecosystem in China. 90% of ad spend went to Bilibili and Bytedance’s platforms, and players can’t even download the game on Tencent’s Myapp store. The meteoric rise of smaller, non-Tencent backed studios focusing on niche genres such as Mihoyo (Genshin Impact), Hypergryph (Arknights), and Papergames (Mr Love: Queen’s Choice) reveals that Tencent underestimated part of how the industry would evolve. Papergames (established less than 7 years) and Hypergryph (established less than 2 years) already command a net profit of RMB 1 billion each, with valuations of tens of billions RMB. Mihoyo’s valuation is now estimated to be more than RMB30 billion ($4.6 billion).

Of course, Tencent is doing just fine, and its gaming business still made meaningful progress this year despite being slower to certain trends. It can’t control everything. That said, Tencent now recognizes a new paradigm shift where player growth could come from anywhere, and the company is quickly adapting to ensure future growth from new sources decreasingly passes them by.