20221229-招银国际-China_Internet__November_online_game_market_recap_2页_483kb

China Internet Market Summary

Core Content

This document provides a detailed analysis of the China online game market and the broader China Internet sector in November 2022. It outlines the performance of the market, key drivers and constraints, and the outlook for major players like Tencent and NetEase.

Market Performance

• Online Game Market:
  Revenue declined by 19.2% YoY and 3.0% QoQ to RMB19.2bn in November 2022.
  The decline is attributed to the lack of new game titles and the high base effect from previous periods.
  In the first 11 months of 2022, online game revenue dropped 9.5% YoY to RMB246bn, aligning with forecasts.
  The market is expected to return to positive YoY growth by 2Q23E as the resumption of game license approvals and the normalization of the base effect take effect.

• Mobile Game Market:
  Revenue growth dropped by 25.7% YoY to RMB13.5bn in November 2022.
  The lack of quality new content is identified as the key constraint for growth.
  New games launched in November had soft monetization performance, with none generating over RMB200mn in the first month.
  The resumption of imported game license approvals in December 2022 is expected to support sector recovery.

• PC Game Market:
  Total revenue increased by 6.3% YoY to RMB4.8bn in November 2022.
  This growth was mainly driven by legacy titles, including Tencent's League of Legends and NetEase's Fantasy Westward Journey.

License Approval Resumption

• Imported Games:
  44 imported games were approved on 28 Dec 2022, after an 18-month delay, indicating a normalization of game license approvals.
  Tencent and NetEase each had 6 and 3 games approved, respectively, including Tencent's VALORANT, which was ranked 6th globally by MAU in March 2022.

Overseas Market Outlook

• Overseas Revenue:
  Revenue from China's self-developed games in overseas markets declined by 8% YoY but was flat QoQ at US$1.36bn in November 2022.
  Key factors include normalization of user time spend post-COVID, macro concerns affecting high ARPU games, and slower new game launches.
  Tencent's GODDESS OF VICTORY: NIKKE achieved global success, generating over US$100mn in one month and ranking in the top 5 mobile games by global grossing in November.

Company Outlook

• Tencent:

  • Domestic game revenue is forecasted to decline by 7% YoY in 4Q22 due to a lack of new titles.
  • International game revenue is expected to decline by 9% YoY, mainly due to a high base in 4Q21 and soft performance of PUBG Mobile.
  • Games revenue growth is forecasted at 8% in 2023E.

• NetEase:

  • Online game revenue growth is forecasted to slow to +4% YoY in 4Q22E, down from +9% YoY in 3Q22.
  • This is due to the YoY decline in revenue from Harry Potter: Magic Awakened.
  • Games revenue growth is forecasted at 3% in 2023E.

Sector Recovery

• Despite the sector downturn, user spending is becoming more concentrated on quality legacy games, which is expected to help Tencent and NetEase capture market share.

Analyst Information

• Analysts: Saiyi HE, Wentao LU, Ye TAO
• Contact: hesaiyi@cmbi.com.hk, luwentao@cmbi.com.hk, franktao@cmbi.com.hk

Related Reports

1. China Internet - Quality growth and further digitization penetration provide growth support - 19 Dec
2. China Internet - The shoe has dropped: PCAOB announced unobstructed inspection access - 16 Dec
3. Bilibili (BILI US) - Focus on more sustainable growth - 30 Nov
4. Pinduoduo (PDD US) - Strong revenue and earnings growth - 29 Nov
5. Meituan (3690 HK) - Long-term development intact despite short-term headwind - 28 Nov
6. Baidu (BIDU US) - Earnings beat on stringent cost control - 23 Nov
7. JD (JD US) - Stronger-than-expected margin expansion - 19 Nov
8. Weibo (WB US) - Ongoing moderate recovery - 18 Nov
9. Alibaba (BABA US) - Earnings back on growth track - 18 Nov
10. NetEase (NTES US) - Preparing for next strong product cycle - 18 Nov
11. Tencent (700 HK) - Return to earnings growth track - 17 Nov

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months

• HOLD: Potential return of +15% to -10% over next 12 months

• SELL: Potential loss of over 10% over next 12 months

• NOT RATED: Not rated by CMBIGM

• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark

• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark

• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Important Disclosures

• The information is not suitable for all investors and is provided for informational purposes only.
• CMBIGM does not provide individually tailored investment advice.
• The value and returns of any investment are uncertain and not guaranteed.
• This report is not an offer or solicitation to buy or sell any securities.
• CMBIGM may have investment banking relationships with the companies covered in this report.
• Conflicts of interest may exist, and CMBIGM does not assume responsibility for them.
• The report is intended for specific recipients and may not be reproduced or distributed without prior written consent.

Legal Information

• Hong Kong: CMB International Global Markets Limited is a subsidiary of CMB International Capital Corporation Limited.
• United Kingdom: Report is only for persons within Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000.
• United States: Report is for major US institutional investors only.
• Singapore: Distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser regulated by the Monetary Authority of Singapore.