Pony Ma Huateng, chairman and chief executive officer of Tencent Holdings Ltd. (Photo by Lintao ... [+]
After Tencent’s messaging app WeChat became the unexpected victim of the Trump administration, analysts say the company’s other billion-dollar investments in the U.S. are also at risk of suffering a similar fate.
The Hong Kong-listed gaming and social media saw its market value fall to $635 billion, a drop of nearly $52 billion since Friday, when it was singled out alongside short video platform TikTok in a pair of executive orders from the U.S. president. Citing data privacy and national security concerns, the order against WeChat, which takes effect in 45 days, bans any transactions involving the app within the jurisdiction of the United States.
Though little is known about the specifics of how the ban would be carried out, worries are mounting that Tencent’s other U.S.-based businesses could also be targeted.
WeChat has a relatively small user base in the U.S., but Tencent’s investments range from full ownership of Los Angeles-based games developer Riot Games to minority stakes in California-based gaming firm Activision Blizzard as well as North Carolina-based Epic Games. Similar concerns over its potential access to user data, including personal and payment information of hundreds of millions of players, could lead the U.S. government to step up regulatory pressure.
“The U.S. [government] has not focused on games yet,” says Paul Triolo, practice head of geo-technology at New York-based consultancy Eurasia Group. “But that could be coming next.”
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Analysts say Tencent can’t rule out that it may eventually be forced to divest its stakes in other businesses. The Trump administration already threatened to ban the U.S. operations of TikTok, which it says captures a vast swathe of users’ information and could potentially share them with the Chinese government. TikTok’s parent, Bytedance has been given a deadline to sell the platform to an American entity before September 15.
Bytedance’s spokesperson disputed the claim and said TikTok has never shared user data with the Chinese government, or censored content at its request.
“Data is a fundamental concern, especially with mobile apps,” says Brock Silvers, a long-time Asia-based investor. “Tencent has already seemingly been restricted by the recent EO [executive order], and asset dispositions seem like a possible next step.”
Tencent’s spokesperson says the company “is reviewing the executive order to get a full understanding.” Its investments in the U.S. also include a 5% stake in Tesla acquired for $1.78 billion in 2017, a $300 million investment in social media platform Reddit made in 2019, and a 12% stake in messaging platform Snap amassed for undisclosed prices.
A forced sale of its investments would be a major blow to billionaire cofounder Pony Ma’s international ambitions, says Cui Chenyu, a Shanghai-based senior analyst at consultancy Omdia. This is because Riot Games is still drawing up to 8 million concurrent players per day for its PC-based online battle game League of Legends, which was first launched more than a decade ago. Alongside Tencent’s own PUBG Mobile battle game, which Sensor Tower estimates generated revenues of $1.3 billion worldwide in the first half, the title is another important pillar of the company’s international strategy.
“If the U.S. ends up going after Riot Games, then the impact would be very serious,” Cui says.
Cui estimates that the U.S. accounts for one-quarter of Tencent’s gaming revenues generated from overseas markets. In the first quarter this year, the company reported a 31% revenue jump in its bread-and-butter online game businesses. Before the executive order, Tencent shares rose almost 50% this year. Pony Ma, who currently has a net worth of $56 billion, is China’s richest man, according to the World’s Real-Time Billionaires List.
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The window for the company to find a solution appears to be narrowing. Intent on purging what was described as “untrusted” Chinese apps from U.S. digital networks, Secretary of State Mike Pompeo had earlier announced plans to expand a program called the “Clean Network.” It includes efforts to prevent services run by Chinese companies to access Americans’ personal and business information.
“For Beijing, this is definitely escalation of this tech conflict,” Eurasia Group’s Triolo says. “There is no sense of trust here and it is going to get worse.”
