Morgan Stanley Bullish on "WeChat Mini Games": Market Still Underestimating Tencent!
Morgan Stanley believes that as the scale of small game consumption and monetization expands, Tencent's domestic game monetization is expected to maintain a low double-digit growth rate in the next few years, approximately around 11%-13%. Moreover, "many investors have underestimated this point!"
Since September, Tencent has fallen more than 6%, but Wall Street still believes in Tencent!
In the latest research report, JPMorgan Chase gave Tencent an "overweight" rating with a target price of HKD 440. Based on the latest closing price, this price implies a 45% upside!
Why is JPMorgan Chase so optimistic about Tencent?
On the one hand, the bank believes that the weakness in Tencent's social networking services and local game revenue is only temporary. Profitability is improving structurally, and it is expected that profit growth will accelerate to 40-60% in the coming quarters, with profit growth of over 20% maintained next year. Profit forecasts have been positively reassessed.
Another major reason is that the bank is very bullish on one of Tencent's domestic game revenue streams that currently contributes relatively little - WeChat Mini Games!
The bank even believes that as the scale of consumption and monetization of mini games expands, Tencent's domestic game monetization is expected to maintain a low double-digit growth rate of around 11%-13% in the next few years, and "many investors have underestimated this"!
In JPMorgan Chase's view, although the economic benefits brought by mini games are currently relatively small, it is expected to account for 2% of total revenue and 4% of overall gross profit in 2023. It is an alternative game platform for mobile devices, personal computers, and consoles, and is becoming increasingly popular due to its convenient login.
In addition, it is expected that the market share of mini games will continue to expand in the next few years, as moderate hardcore and hardcore game consumption shifts to this platform. JPMorgan Chase estimates that with the shift of monetizable games to this platform, mini game revenue (in-game purchases, IGP) will grow by about 140% in 2023.
The bank also noted that compared to the game type structure five years ago, game types with stronger monetization capabilities (such as role-playing games, first-person shooter games, strategy games) are becoming increasingly popular on the mini game platform, which is a favorable signal for improving monetization. It is expected that moderate hardcore games will continue to migrate to the mini game platform, thereby driving sustainable revenue growth and market share expansion for Tencent's domestic game business.
The bank pointed out that 2022 is a turning point for the development of mini games, with an increase in the supply of moderate hardcore games with carefully designed IGP and IGA (in-game advertising) features. It is expected that in 2022, Tencent's mini game IGP revenue will more than double, and IGA revenue will increase by 40%.