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Tencent Market Cap $17.5B Drop

Tencent Holdings’ lost $17.5 billion of its market cap after a newspaper review described one of its products and harmful to teenagers. Tencent Holdings is the operator of China’s dominant social network, and is also known for being the publisher behind “King of Glory,” one of the world’s most popular role-playing mobile game.

The newspaper in question was the People’s Daily newspaper, often described as the Chinese communist mouthpiece, which reviewed the game and concluded that the game was a “poison” and a “drug” that had harmful effects on teenagers. This response was based on reports that the smartphone game was encouraging all-nighter gaming marathons, which was posing a threat to children’s growth and studies. As a result, Tencent’s shares dropped as much as 5.1%, plunging in Hong Kong trading.

The People’s Daily further criticized Tencent’s most profitable smartphone game by citing examples of how addictive games spread “negative energy,” and in some cases have even led to cases of deaths. Prior to the editorial being written, China’s biggest messaging and games company announced restrictions of children’s playing time through hour limits and parental controls. Players under the age of 12 will be restricted to one-hour playtime per day, and log-ins after 21:00 will not be allowed. Children above 12 until the age of 18 will be given at most 2 hours of playing time per day.

Tencent issued another statement that said the game’s design complies with government rule, and that the company will continue to accept the burden in light of its social responsibility contract accordingly. This is especially important in light of the popularity of the mobile game, and its increasing player pool across the country. The People’s Daily responded with an acknowledgment that the game is not evil by design, but that coordinated efforts are required by both the government and the game developer.

Despite the impact the critical newspaper editorial had on Tencent’s reputation and market cap, the game’s massive popularity means that the revenue stream developed by the game should not face a huge impact despite the latest government push to restricts user play time. “King of Glory” has a diversified player base that does not primarily focus on primary or middle school students. In fact, there is a significant portion of older players dedicated to the mobile game, and their play time should remain largely unaffected. Furthermore, players of younger ages often find ways around restrictions in order to allow themselves to continue playing the game, which should further stimulate and stabilize Tencent’s revenue stream.

Tencent’s response to this situation has been in line with their accepting of corporate social responsibility because not cooperating with the government has the potential of ruining their business. It is important to remember that market cap is an evaluation of a company’s performance and expected worth, and while it is not insignificant as a tool, a drop in the market cap is not the be all and end all. Considering that users under 17 years old account for about 20% of the mobile game’s player base, these regulations do have an impact, but not one that is completely detrimental to the company’s future growth.

It is also important that parents take responsibility on behalf of their children in ensuring that they supervise and moderate how much time children spend playing a mobile game. Between parent’s supervision and the company’s projected time restrictions, children will be facing a drastically reduced playing time, as well as reduced exposure to something that is considered harmful. It will be interesting to see if the restrictions apply only to Tencent considering the magnitude of their game’s popularity, or if the restrictions will expand to all mobile games that have users spending a significant portion of their day on.

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