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Battle royale in overseas game market

作者: Leo LIU,Matt MA
时间: 2019年06月20日
重要性: 一般报告
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摘要: Report title:Battle royale in overseas game market
Analyst:Leo LIU,Matt MA
Report type:Industry
Date:20190620
[Summary]

■ Game leaders have more potentials to gain overseas traction
■ Battle royale titles showcased leaders’ edges over small players
■ Maintain BUY on Tencent (700 HK; TP HK$422) and NetEase (NTES US; TP US$315) on their edges in overseas mobile game publishing
Tencent and NetEase drive incremental growths in overseas market
Under China’s online game market’s tightening environment and fierce competition, going abroad became essential choices for domestic leaders. According to Newzoo, in 2018 China self-developed online games received US$9.6bn of overseas rev, in which mobile games contributed US$6.9bn (23%YoY). Chinese publishers only captured 16% of the overseas mobile game market share, leaving plenty room to grow especially for newer players Tencent and NetEase. In 2018, the two companies contributed US$472mn only. Although they accounted for small share (~7%) in the fragmented market, their overseas rev grew drastically at 505%YoY thanks to the successes of their battle royale titles. According to SensorTower, Tencent’s PUBG Mobile and NetEase’s Knives Out were ranked #1/ #2 on Chinese mobile games’ overseas rev list in May 2019 (from #3/ #1 in Dec 2018), and received US$76mn (17% MoM) and US$44mn (32% MoM) respectively. Although PUBGM tapped into overseas market late, it has surpassed Knives Out’s ranking starting from Jan. We believe these two games will continue to prevail and drive more incremental growths.
IPs, refined operations, global publishing capabilities are key edges
We believe that compared with smaller players in overseas markets; Tencent and NetEase have advantages in: 1) Abundant premium IP resources; 2) Technical strengths to provide frequent game updates and higher compatibility; 3) Global game publishing capabilities; and 4) Established eSports ecosystems. Operating strategy is crucial in determining the fate of overseas games. Despite being the undisputable #1 mobile game in China, Tencent’s AoV (Honor of Kings in China) did not receive similar popularity overseas due to lack of IP and misplaced publishing strategy. Learnt from AoV’s lesson, PUBGM leveraged on PC version’s globally well-known IP, and aimed at unified global publishing from the beginning. Along with Tencent’s global server buildouts, frequent game updates and compatibility adjustments towards lower-end smart phones, the game received much wider popularity, especially in the emerging markets. As a result, it accumulated the largest user base with over 50mn DAU/ 100mn MAU. On the other hand, NetEase leveraged on its deep understanding of Nijigen culture, placed its focus in Japan. Its Knives Out received early movers’ advantage, and soon became a blockbuster due to refined operations such as collaborations with popular Japanese IPs. We believe NetEase’s overseas strategy will be more limited to Japan market, where gamers’ high paying capabilities may still generate solid rev, and it also lacks sufficient experiences in operating e-sports games and ecosystems like Tencent.
Prefer Tencent among all Chinese game publishers in overseas market
Being Tencent’s first proprietary published overseas game, the success of PUBGM marked a milestone for it. We believe Tencent still has much potential in overseas market given 1) PUBGM can further improve its user size, paying ratio and ARPU with more IP collaborations and innovative gameplays; 2) The experience and know-hows acquired can be leveraged in its future key games like CODM and LOL Mobile; and 3) Following Tencent Cloud’s overseas expansion, it can facilitate other gaming companies’ overseas publish by providing game server services. We maintain BUY ratings for Tencent and NetEase with TP at HK$422 and US$315 respectively. They are currently trading at 31x/ 24x FY19E P/E, vs. China online gaming players’ 19x.

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