A year ago, at Tencent's annual staff meeting, Chairman Pony Ma criticized the gaming business for "resting on its laurels." Just one year later, this assessment has transformed into "a very impressive achievement."

The overseas business has been emphasized once again, and it was revealed that Tencent's share of overseas game revenue is now close to half of its domestic business.

In 2019, Tencent began accelerating its steps toward global expansion. Last year, the overseas gaming business was even seen as the company's biggest hope for internationalization.

This year, Pony Ma once again gave positive feedback on the overseas business.

01.New and Old Products Jointly Pushed Revenues to New Highs

According to the released financial reports, Tencent's overseas gaming business generated revenues of 13.6 billion CNY, 13.9 billion CNY, and 14.5 billion CNY in Q1-Q3 of 2023, showing year-on-year growth of 3%, 9%, and 11% (calculated at fixed exchange rates). In Q3, it even set a new high for quarterly revenue.

However, when extending the timeline, it becomes apparent that the year-on-year growth rate for overseas business has slowed compared to Q2 (19%) and Q3 (14%) of 2023. Moreover, the revenue share of overseas business in the overall gaming business has also decreased.

Looking back over the past year, 地下城与勇士：起源 launched and predictably became a hit in the mobile gaming market, becoming a new growth driver for Tencent’s domestic gaming business. 三角洲行动, launched at the end of September, also contributed a significant amount of growth.

However, in the overseas market, the growth in the first three quarters was largely driven by older games. Among them, Supercell's Brawl Stars stood out, being mentioned in several reports.

According to Q1 reports, Brawl Stars' daily active users (DAU) were more than double compared to the previous year, and its revenue grew more than fourfold.

In Q2, the game’s active user base ranked third in the international mobile game market, and revenue grew by over tenfold. According to Sensor Tower data, the game's revenue in the first half of the year exceeded the total revenue of 2022 and 2023 combined, with Q3 revenue growing by over 700% year-on-year.

In addition, PUBG MOBILE and VALORANT were also highlighted in the reports. The latter expanded from PC to console in Q3, driving revenue growth by 30% year-on-year.

As for new products, there were several heavyweight titles last year, including Supercell's long-awaited SQUAD BUSTERS, Honor of Kings (the international version of 王者荣耀), and Age of Empires Mobile with the Age of Empires IP.

SQUAD BUSTERS surpassed 40 million pre-registrations before its launch and earned over $34 million in its first month. However, even without comparing it to Clash Royale's $110 million first-month revenue, its performance still lagged behind Brawl Stars, which earned more than $43 million in its first month.

The bigger issue is that SQUAD BUSTERS' performance quickly tapered off, with DAU and revenue declining sharply. During this period, Supercell made major adjustments to the game, which did yield some results but still couldn't bring it back to its peak performance.

Another major title, Honor of Kings, which launched at the end of June, has yet to break into Sensor Tower's top 30 for overseas revenue. On the other hand, Age of Empires Mobile, which launched on October 17, became a surprise hit on the overseas revenue charts, debuting at No. 23 and still staying on the list.

Overall, Tencent’s overseas business lacked new growth drivers last year. While new products contributed, the heavy lifting was still carried by old products.

02.Only Three Overseas Investments, Global Expansion Slows Down

As is well-known, investment and acquisitions were once a key method for Tencent Games to accelerate its overseas expansion. However, in the past year, there were only three notable overseas investments. Among them, Tencent directly invested in Remedy, a single-player game studio known for Alan Wake 2, which won the TGA Best Narrative award in 2023.

The other two investments were initiated by Tencent's subsidiaries Supercell and Miniclip. Supercell acquired Space Ape, and Miniclip acquired Easybrain for $1.2 billion. Both of these companies have made strides in the casual gaming sector. Space Ape’s products cover categories like match-3, arcade, and music games, while Easybrain focuses on games like Sudoku, crosswords, and puzzles, with a cumulative download count of over 2 billion.

Casual games hold significant weight in global markets, particularly in top-tier markets like North America and Europe. In the US, for example, casual games accounted for 60% of total mobile game revenue in 2023. For Tencent, whose goal is for overseas revenue to account for half of its total revenue, acquiring these two companies holds considerable significance.

However, compared to previous years, Tencent's overseas investments have slowed sharply. According to incomplete statistics, Tencent made nearly 100 gaming investments overseas over the past 20 years, with more than 60% of these occurring between 2019 and 2023.

In 2019, Tencent made only five overseas investments in gaming, and by 2020, this number had nearly doubled to 10. In 2021, it nearly reached 20, growing each year. Starting in 2022, overseas investments began to decline, and by 2023, there were only 8, still significantly fewer than in previous years.

It is clear that Tencent’s overseas investment strategy has shifted. The rapid expansion through capital operations has clearly slowed down, but this slowdown is not a retreat; rather, it’s a natural adjustment after several years of rapid growth. After all, quality resources overseas are limited, and Tencent also needs time to absorb and integrate these resources.

03.What Lies Ahead for Tencent Games' Globalization?

In conclusion, Tencent’s performance in overseas markets last year can be described as “steady with progress.” However, the slowed year-on-year growth and declining overall revenue share also indicate that the "50-50" target has not achieved a breakthrough.

A key issue is that, compared to domestic markets, there is a lack of products in overseas markets that can serve as new growth drivers. The much-anticipated Age of Empires Mobile, which launched relatively late, is an SLG game that requires long-term operations, and its future performance remains to be seen.

The product issue can only be solved through products themselves. Over the past year, Tencent has noticeably accelerated its release of new products overseas. Under its overseas brand Level Infinite, six products have launched or opened for pre-registration. Using AppGrowing’s "Top Publishers" feature, we can see that two well-known IP adaptations—Command & Conquer™: Legions and Delta Force (the overseas version of 三角洲行动)—are in the pipeline.

While accelerating, Tencent is also deepening its IP strategy. In November last year, Tencent revealed three heavyweight IP products in one month: Monster Hunter Outlanders, Final Fantasy XIV: Crystal World, and Light of Motiram.

It is undeniable that mature IPs are more attractive to users. In recent years, Tencent has built a strong reputation in mobile game development, network operations, and other areas for major overseas IP game companies, which enables it to leverage the influence of these large IPs to further expand in global markets.

In the past, investments were considered a shortcut for Tencent to enter overseas markets. However, Tencent's Senior Vice President, Ma Xiaoyi, had stated early on in an interview that Tencent aims to "walk on two legs"—one is “investment,” and the other is “building its own teams.”

In recent years, Tencent has indeed set up many overseas studios, and last year it established Uncapped Games in the US and Lightspeed Japan Studio in Japan. However, the more crucial step was the establishment of Level Infinite in 2021.

In addition to publishing, Level Infinite also provides support and services to game studios in areas such as technology, product development, esports, publishing, and offers insights and analysis on service-oriented game models and regional markets.

This brand is Tencent's launchpad for further expanding into overseas markets. It will help Tencent better integrate its resources and technological advantages, enabling it to publish global products and further enhance Tencent Games' global market penetration.

In the new year, whether Tencent's overseas business can make further strides will largely depend on the performance of these heavyweight IP products in the pipeline, and how much of an impact Level Infinite can have on these results will undoubtedly play an important role.