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The Biggest Video Game and Social Media Company You've Never Heard of

By Motley Fool Staff – May 22, 2018 at 8:39AM

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This industry giant with a billion users in China may be unfamiliar to Western investors.

In this segment from Industry Focus: Tech, analyst Dylan Lewis is joined by contributor Danny Vena to discuss Chinese tech titan Tencent (TCEHY 1.45%).

A full transcript follows the video.

This video was recorded on May 18, 2018.

Dylan Lewis: Why don't we start off talking about a company that we mentioned last week, Tencent?

Danny Vena: Dylan, Tencent is a company that's probably not that well-known to U.S. investors unless they have a particular focus on China. Tencent is one of the largest video game and social media companies in the world in terms of revenue. And it bears saying that there's a dynamic, when you talk about the United States, you talk about apps, we have a different app for everything. We have apps for social media, we have separate apps for messaging, we have separate apps for each video game. In China, the dynamic is a little bit different, particularly with Tencent. Tencent has what's called a social messaging app. This app has over a billion users. A billion. That's of the 1.3 billion population of China, so that's pretty substantial penetration, there.

Lewis: Yeah, that's a pretty big installed base to work off of. And not only do they have this WeChat app, they're also the largest video game publisher by revenue, and they have a lot of very successful titles in the Chinese market.

Vena: They do. Chinese consumers are truly taken with the game Honor of Kings, which is one of the largest video games in the world, and a game that most Western gamers have never heard of. However, they may be familiar with a game called Fortnite, the Battle Royale, Hunger Games-style game that has taken the world by storm lately. It's a free-to-play game, however, it's been making hundreds of millions of dollars each month as gamers that are playing buy add-on things within the game itself. They're buying skins for their players. Mind you, this is not loot boxes. I know there are a lot of folks that are not into the whole loot box thing. They're not buying extra lives, they're not buying weapons, but they're buying clothes and other things for their players.

Lewis: Yeah. I was down in Florida visiting my family a couple of months ago, and my cousin has kids between eight and 12, and Fortnite is all they wanted to talk about. As someone who doesn't have children, it's kind of a good reminder of how popular things can be outside of the core demographic that you're in.

Now, this is a rare instance where they have exposure to something that's in the United States and is not yet in China. Actually, Tencent is accepting pre-registration for Chinese gamers for the Epic Games title, Fortnite, but they don't currently have access to that. So, for all the growth that we've seen with this particular title, it's not yet in one of the biggest gaming markets in the world.

Danny Vena has no position in any of the stocks mentioned. Dylan Lewis has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool has a disclosure policy.

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