When China said that young children may not play video games for more than three hours a week, shares of JD.com (NASDAQ:JD), Tencent (OTC:TCEHY), and Bilibili (NASDAQ:BILI) dipped. China’s crackdown on the gaming industry is nothing new. Over a decade ago, the country reviewed NetEase (NASDAQ:NTES). In the years that followed, NTES stock recovered.
JD withdrew the sale of unapproved game titles to comply with China’s rules. This will keep JD on good terms with the Chinese government.
Reports from the South China Morning Post that China will halt the approval of new online games will limit the upside in Tencent and BILI stock. Still, the lost revenue for gaming companies will limit China’s actions. In time, the government will need to loosen the rules. The online gaming market is thriving. Eventually, China will need to let Tencent and Bilibili thrive in this space.
The government sent a clear signal on limiting the online gaming market. Gaming companies will add features that discourage gaming addiction. They may even go so far as to add an identification card or facial recognition to monitor online gaming time. The busy parents of children who play games will likely find ways to limit gaming time.
Bottom Line
The biggest gaming companies have the resources to comply with government regulations. Tencent will thrive as smaller gaming firms cannot keep up in the coming years. Investors should watch Tencent, NetEase, and Bilibili.
