Recently Adam Khoo made a video on his YouTube channel expressing his frustration on the latest gaming restrictions released by the Chinese government on Dec 22. He also said that he has sold all his stake in Tencent during the selldown, and will eventually sell away all his China holdings.
Quite surprised that Adam Khoo, the guy who preachs not to listen to headline news, was spooked by Western media into selling. He didn't even give Tencent a chance to explain itself.
What are the facts?
From the actual facts I gathered:
- NPPA (National Press and Publication Administration) made another announcement on Dec 23 that it will listen to feedbacks from all stakeholders and improve the rules. Also to note, this Exposure Draft is a consultation paper, not final implementation.
- NPPA approved new batch of 105 domestic license on Dec 25. Last batch was Dec 5 (87 games). A signal of support to the industry.
- Tencent's online gaming revenue is ~30% of overall revenue, of which ~20+% is from China. Justify a 12% drawdown?
- The new Exposure Draft mainly affects high ARPU games. Most of Tencent's games are low ARPU and their established games do not rely on "daily sign-ups" or "incentive for first spending" that are targeted in the draft. Tencent' games are in fact dependent on high DAU not high ARPU to drive growth.
- The rules mentioned are small changes and not going to overhaul the already-very-compliant industry.
While I can understand the frustration with another China regulation implementation, and I generally agree with Adam Khoo's stance on China equity market, it is the worst time to sell Tencent when the market was in panic-sell mode (even if AK justify it with a rotation to NIKE, he could have sold his other China ETFs). Once the market calms down and revisit the potential impact on Tencent, I believe rationality will drive some rebound to the share price which is probably a better time to offload.
With all that being said, I still respect AK and generally appreciate all his Youtube investment content. I just disagree with his view that there is a structural change and the way he handled Tencent as such.
Comments