The Ban Seems Less Dangerous for Tencent than ByteDance
August 6, 2020, Trump took additional steps in his mobilization against Chinese technology, targeting another China's giant in the form of Tencent. Similar to the action on TikTok, the messaging service app WeChat owned by Tencent will be banned, as will any US transactions with Tencent. Those executive orders, released late Thursday, will take effect in 45 days.
Again, the US government cited national security issues when announcing restrictions on two popular Chinese social media apps. Now, under extremely high pressure, ByteDance is seeking an acquisition agreement with a US company; Microsoft is currently negotiating with ByteDance to acquire part of TikTok, which is scheduled to be completed on September 15.
About the impact of this executive order:
1) In 2019 Q4, Tencent's overseas game revenue accounted for 23% of overall game revenue, which was a relatively low percentage of its total revenue. It's been estimated that revenue from the US accounted for about 20% of overseas game revenue, and less than 5% of Tencent's overall game revenue, and less than 1% of the company's overall revenue – therefore, the ban has a limited impact on the company's revenue;
2) In terms of advertising, overseas WeChat users account for a relatively low proportion of WeChat's overall users. The number of US users is limited, and the level of monetization is low. It will not have a significant impact on advertising business revenue;
3) In other social entertainment fields (video, music, reading), the company's main business is concentrated in China. The current domestic market payment penetration rate is still low, and long-term development space is sufficient;
4) In terms of cloud business, in April 2018, the US Trade Representative Office (USTR) began to work on restrictions on cloud computing services invested by Chinese companies in the U.S., After that, Chinese activity in the US is relatively limited. The main overseas revenue comes from the European and Southeast Asian markets.
Tencent's current major investments in the US include: Riot Games (holding controlling interest); Epic Games (holding 48.4% stake); Activision Blizzard (holding 6.0% stake); Spotify (holding 10.0% stake); Snapchat (holding 10.0% stake; Tesla (holding 5.0 stake).
According to an analyst from Huatai Financial Holdings, Tencent's current investments in the US are mainly in the field of entertainment content and do not involve the social communications field that this ban focuses on, and Tencent does not have a controlling stake in most of the companies it invests in, that is, it does not have the authority to obtain and manage user data. It's been estimated that Tencent's main investment in the US currently only accounts for about 3% of Tencent's current market value, and the overall risk is controllable.