Top News

#1:  Tencent’s Q2 Results Highlight Its Ongoing Struggles

Approximately two weeks ago, Tencent—the largest games company in the world—reported its second quarter results. Although it’s tough to dig super deep into the specifics given the complexity of Tencent’s games operating business, looking at Tencent’s results is a great way to get a quick and solid pulse of the broader market.

For starters, both the domestic (China) and international games segments experienced 1% year-over-year revenue declines. Domestic games revenues were RMB 31.8 billion ($4.6B – 75% of the total), and international games revenues were RMB 10.7 billion ($1.55B – 25% of the total).

According to the press release, “The domestic game industry is facing transitional challenges including fewer big game releases, lower user spending and measures to protect minors.” To be frank, these are tougher than usual challenges to operate under. Most notably, last year China instituted another game approvals freeze that lasted nine months; it technically ended in April 2022, but in each new batch of game approvals since then Tencent’s games have been absent. This means that Tencent’s domestic games operations are held back by a complete absence of new approvals and must grow based on existing titles and yet-to-launch ones that were approved some time back.

Fortunately, Tencent is in a strong position when it comes to blockbuster games that attract significant time spent from domestic users. Even though mega-games like Honour of Kings, Moonlight Blade Mobile, and League of Legends experienced decreased revenues, Honour of Kings and Peacekeeper Elite were still the two most played games in China. Plus, Fight of The Golden Spatula (ranked fourth by total time spent) and Arena Breakout (ranked eighth by total time spent) were two newly launched games from Tencent that performed very well out of the gate. League of Legends Esports Manager, which released in July, is also currently proving to be a high-grossing simulation game. Even so, a full year of no new game approvals will hold back Tencent’s growth to some degree in the next couple years.

On the international side, Tencent claims that the industry is experiencing “a post-pandemic digestion period,” which of course is true but also oversimplified. Management calls out the growing success of Valorant (from Riot) and Miniclip’s acquisition of Sybo (behind Subway Surfers) as examples of Tencent’s continued progress, but in reality things have slowed down quite a bit. On the PC/console side, releases are broadly lacking this year; on the mobile front, Apple’s privacy changes have impacted growth rates; and regarding M&A, Tencent’s activity (as well as that of its subsidiaries) has dramatically slowed. Some of this is cyclical and will rebound, but some is also driven by geopolitical pressures and is, therefore, more uncertain.

Additionally, like many companies right now, Tencent is looking to establish greater efficiency (higher earnings) while growth is being challenged. Across the larger corporation, this is taking place in a few ways: reducing headcount (recently it laid off over 5,000 employees – a bit less than 5% of the workforce), closing or reducing non-core businesses, massively cutting back on less effective user acquisition, and shifting all in-house services to Tencent Cloud. Management also makes it clear that additional efficiency initiatives will be tackled in the coming months.

It’s hard to tell from the outside how exactly this impacts Tencent’s games business — especially since so much of it is run in a distributed way. Perhaps it means reduced spending on lower ROI user acquisition campaigns (increasingly common right now) or putting fewer resources into supporting smaller games that don’t move the needle as much. In general, Tencent is still clearly hunting for big gaming opportunities. In particular, as domestic growth is held back by the Chinese government, management certainly hopes to make its international business a larger percentage of the total pie. For example, Lightspeed Studios (formerly Lightspeed & Quantum), which is behind the success of PUBG Mobile and Apex Legends Mobile, is on the hunt for new IPs to take to mobile globally. It was also reported that Tencent is interested in taking a much larger stake in Ubisoft (it previously purchased a 5% allocation) as it works through internal struggles and determines its future path. And in most recent news, Tencent (through Sixjoy) will become the second largest shareholder of FromSoftware (behind the Souls games, Elden Ring, etc.) with a 16.3% ownership stake.

If we zoom out, Tencent remains a stellar company, and even though it’s facing an array of headwinds abroad and at home, its games business remains robust. However, that fact doesn’t mean the difficulties will fade. The mobile market will remain challenged for quite some time as IDFA implications fully work through the system; a financial market less accommodating of deal-making should lead to lower inorganic growth in the coming quarters; and no domestic game approvals for over a year (while other games from competitors do get approved) should lead to restricted growth and potentially even reduced market share if something doesn’t change (Note: it’s likely Tencent will see a handful of approvals in the next few batches of approvals).

The company can work to become more efficient and still find new opportunities around the world, but the various limitations are still holding Tencent back from its maximum potential. Perhaps that’s a good thing from an anticompetitive standpoint, but it’s certainly a bummer for Tencent.

Game Launch Radar

#1: Nemo’s Aqua Pop

• Publisher: Wemade Play

• State: Partial launch
• Territories: Asia
• Classification: Casual – Puzzle – Match-3

• Quick thoughts:

  • Wemade Play (with Ho-dae Lee as CEO) announced on August 23rd that it has officially launched its new title, “Nemo’s Aqua Pop,” on the Asian market. See the gameplay video here.
  • It is a mobile Match-3 game based on Disney and Pixar’s popular animation “Finding Nemo”. In this game, players encounter multiple characters from the original movie, such as Nemo, Dory, and Mr. Ray, who appear with special block skills and effects. Players also decorate their own underwater world through collecting a variety of fish.
  • Wemade Play has worked on many Disney IP games in the past, and here it presents 500 puzzle levels, 200 missions, and 12 characters. In addition, there is a rich variety of different game modes, such as a first-come, first-served puzzle-solving game, short competitive battles of less than an hour, and 3-5 days of teamwork competitions in an attempt to cater to a variety of puzzle game fans.
  • In many ways, this game is quite similar to Playrix’s Fishdom (~$1.3B in lifetime revenue), but it is too early to comment on any performance metrics. That said, the concept is theoretically stronger than Fishdom due to: 1) it actually integrating the Finding Nemo IP (unlike Playrix), which will result in a user acquisition edge, and 2) a deeper decorate meta that pulls from well-established best practices in games like Gardenscapes, Homescapes, etc. It will be interesting to see whether this game can eventually one-up on Fishdom, but going up against Playrix is no easy task either.

#2: Food Stylist

• Publisher: Not Doppler
• State: Hard launch
• Territories: Global
• Classification: Casual – Lifestyle – Customization

• Quick thoughts:

  • Sydney-based studio Not Doppler has announced the official release of Food Stylist, letting players unleash their inner foodie designer in a photorealistic food decor game. In a sea of customization games, such as Design Home, Covet Fashion, and Redecor, Not Doppler has identified a very smart niche that is inspired by all the hubbub around Instagrammable food culture online. See the gameplay video here.
  • The core gameplay and metagame loops are heavily inspired from Design Home’s system of design → vote → win → reinvest in future designs. It’s one of the more novel game loops in the mobile F2P market, and it’ll be interesting to see whether a pure thematic change (food styling) will be enough to set Not Doppler apart in an already crowded market with a few major incumbents.
  • The team is currently scaling their UA efforts across the globe and showcasing very strong revenue per download metrics versus Redecor and Design Home. But it’s still the early days, and we’ll be keeping a track of whether the RPD strength sustains or if it is just a golden cohort effect at play.

#3: Earth: Revival

• Publisher: Nuverse (Bytedance)
• State: Beta
• Territories: NA
• Classification: Mid-core – RPG / Shooter – Survival / Tactical Shooter

• Quick thoughts:

  • Nuverse has just announced its debut game called Earth: Revival, which will be released on mobile and PC next year. It is a sci-fi open world survival multiplayer title that takes place in 2112 on a ravaged planet Earth. Check out the Gamescom gameplay video.
  • Speaking about the game’s announcement, producer William Lu said: “We’ve always wanted to combine third person shooter combat mechanics with the open world and survival genres to create a unique synergy that will make the players feel the world is bristling with identity and constantly changing and evolving around them!”
  • Even though this game is quite early in its development cycle, we thought it would be important to highlight for two reasons – 1) it is being developed by a heavily resourced Bytedance subsidiary, which is likely required given the game’s open world ambitions and says a lot about future production values, and 2) we explored how survivor shooters are an important frontier for shooters more broadly, and this game not only follows that prediction but also adds an open world element into the mix that has started to gain its own traction in the mobile market with games such as Genshin Impact and Tower of Fantasy. Earth: Revival will not be a game to sleep on.

Other Game Announcements

• Tower of Fantasy’s global version crossed 10 million downloads in 11 days. Link
• Supercell is shutting down Clash Quest, which underperformed expectations. Link
• Playrix soft-launched Familyscapes, following the mega-success of its Homescapes series. Link
• Warhammer 40,000: Tacticus is now available globally on iOS and Android. Link
• Real Cricket 22 is now available on iOS and Android. Link
• Bloodline: Heroes of Lithas, which had a strong start in English-speaking countries in June, is set for a global release on September 21st. Link
• Century Games finally released its strangely worded new game, Among Gods! RPG Adventure. Link
• GODSOME: Clash of Gods is Nexon’s next MMORTS game, which will likely pursue a global launch. Link
• Ultimate Sackboy, a mobile Little Big Planet spinoff, hasn’t been formally announced by Sony yet but is now listed on Google Play. Link

Company Announcements

• Sony acquired Savage Games Studios, which is working on “a new unannounced AAA mobile live service action game” and will join the new PlayStation Studios Mobile Division. Link
• Unity rejected Applovin’s merger offer, staying the course instead with IronSource. Link
• Tencent released its Q2 earnings report, which showcased a 1% decline in both domestic and international games revenue. Link
• Embracer’s Q1 results showed 107% revenue growth driven by inorganic growth, and the company continues to strike deals (most recently the acquisition of IP rights to The Lord of the Rings, among others). Link
• NetEase’s Q2 results showcased a 15% increase in its gaming division, which can be attributed to hits like Diablo Immortal, Fantasy Westward Journey, and Identity V. Link
• Netmarble’s Q2 results showed a 14% rise in revenue, a decline in profits, but expectations for a strong Q3 in the form of revenue from new releases better contribute to the numbers. Link
• Despite selling several western studios, Square Enix is launching a new western studio, Studio Onoma, which we don’t know much about yet but may house some of the company’s mobile operations. Link
• TinyBuild Games acquired Konfa Games and Bossa Games IP for a total of $8.4 million. Link
• Room 8 unveiled its new mobile games division, Solid Bash. Link
• Carbon Counts raised $4.5 million in seed funding to work on its first mobile title, EverForest, which will plant real-world trees based on user progress. Link

Ecosystem Announcements

• Devcom Developer Conference 2022 pulled in a record 3,500 participants. Link
• The MENA games market is expected to reach more than $5 billion by 2025. Link
• Rogue Games is the next company to announce a four-day work week. Link
• Leading toy companies Hasbro and Mattel are taking video games more seriously by launching new studios and accelerating hiring.
• Women in Games launched a free guide to gender equality in gaming. Link

Content Worth Consuming

• Challenging Supercell’s Sacred Cows: The Importance of Evolving Company Culture as You Grow (GDC): “In this 2022 GDC session, Supercell’s Lesley Mansford highlights the importance of companies reevaluating their culture as a habit as they grow, instead of as a response—and how Supercell is approaching its second decade.” Link
• Will Dislyte Be Lilith’s Next Big Mobile Gaming Hit? (GameMakers): “We talk about Lilith Games’ latest mobile game: Dislyte. It’s a ‘team battle’ (game sub-genre) based mobile game that started strong but has recently slowed down. What are the chances of success?” Link
• After PUBG and Apex Legends, Lightspeed Studios is readying its next big mobile collab (MobileGamer.biz): “Lightspeed Studios has only just got started. Formerly Lightspeed & Quantum, the Tencent-owned outfit is currently best known for co-developing PUBG Mobile (with Krafton) and Apex Legends Mobile (with Respawn). And yet it’s still, weirdly, a little under the radar. That’s despite having teams based in China, US, UK, Singapore, Canada, France, Japan, South Korea, New Zealand and UAE, with over 50 games developed across all platforms since its formation in 2008. In that time it has grown from a 100-person start-up to over 4,000 staff, as it stands today. So after co-launching two of the biggest IPs on mobile, what’s next for Lightspeed? And who exactly is in charge?” Link
• Ten years of Clash of Clans: milestones, missteps and Barbarian drool (MobileGamer.biz): “Supercell is really having some fun with Clash of Clans’ 10th anniversary. There are in-game events to mark the occasion, of course, but the activity also extends outside the game with a full alternate history, a lavish mockumentary plus real, playable games Clash and Clash Dash. The game’s actual history has its origins in a Facebook game codenamed Magic, which got canned as a nascent Supercell focused its energies purely on tablets and phones. A second game codenamed Magic, the project that would become Clash Of Clans, emerged from the same team.” Link