Bernstein highlighted a significant milestone for Chinese video game companies as Tencent (HK:0700) and NetEase (NASDAQ:NTES) achieved international success with their recent launches. In December, Tencent’s "Path of Exile 2" and NetEase’s "Marvel Rivals" were recognized as global hits, marking a pivotal moment for these companies in the competitive global video gaming market.
Bernstein estimates that the global video gaming revenue reached approximately $209 billion in 2023, with the Chinese market accounting for about $45 billion. This leaves a substantial opportunity, roughly $165 billion, for Chinese developers to expand globally.
Bernstein noted that Tencent currently holds a mid-single digit share of the global market. The firm believes that NetEase’s "Marvel Rivals" represents a breakthrough in the company’s efforts to grow its presence outside of China. The success of Asian developers is attributed to factors such as lower R&D costs, innovative intellectual property, and increased creative freedom, which could help them gain market share from Western competitors.
The report also discusses the significance of understanding the console and PC gaming segments. Historically, the focus has been on mobile gaming in China, but with the maturation of the smartphone market, Bernstein expects Tencent and NetEase to target growth in console and PC gaming. The adoption of Unreal Engine 5 is seen as a factor that will help bridge the gap between mobile and traditional gaming platforms.
Bernstein also addressed the interpretation of Steam concurrent users data, suggesting that daily active users (DAUs) for a game could be up to three times higher than peak daily concurrent users. The firm provided guidance on how to assess key engagement and monetization metrics, indicating that a range of outcomes is possible.
For Tencent, Bernstein expressed confidence in the company’s gaming strength, pointing out several successful titles and dismissing concerns over a potential gaming slowdown in 2025. The firm also downplayed the implications of Tencent being labeled as a "military company" by the U.S., viewing the recent market weakness as a buying opportunity.
NetEase’s creative capabilities were questioned by investors in 2024, but Bernstein now sees potential signs of the company’s ability to achieve global success. Despite concerns over a possible mobile billings shortfall in the first half of 2025, Bernstein suggests that any dips in share price may be limited as investors look forward to the potential 2026 launch of "Ananta."
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