Krafton’s IPO launch didn’t go to plan thanks to China and Tencent

    
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Yesterday was supposed to be a huge day for Krafton, the South Korean gaming giant behind everything from TERA to PUBG, as it launched its initial public offering. As GIbiz notes, its IPO share price was 498,000 KRW (about $430 US), but as the market opened, shares were already trading down 10%, sinking to 20% down at one point before rebounding and putting the company’s valuation at just under $20B US.

So what the heck happened? South China Morning Post attributes the rough launch to that whole “spiritual opium” thing from last week, when a Chinese state media outlet accused the gaming industry of “develop[ing] in a way that will destroy a generation,” effectively threatening the industry. The state news agency eventually retracted the article and reposted it with less antagonism, but the damage was done: It caused such a panic that Tencent’s stock lost $60B and forced it to introduce even more limitations for kids.

SCMP notes that market confidence is still down, but it also argues that Krafton is also heavily intertwined with Tencent thanks to Tencent’s large stake in the company and its publishing rights for Krafton’s games in China.

Source: SCMP, GIbiz, Gamasutra
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Bruno Brito

I wonder if Tencent is powerful enough to buy their way outside of China. Are those regulations even worth the trouble?

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mars omg

Tencent is a front, as they play the game of the oppressed too oppress.

Tencent’s chief executive and co-founder Ma Huateng, known as Pony Ma, is widely assumed to support the Communist Party. He is a member of the National People’s Congress (NPC), China’s national parliament. Aug 7, 2020

Stefan
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Stefan

I mean if you want to get anywhere in any large country you are going to have to have political ties, if we look at the recent scandal of Activision Blizzard, Kotick is an republican and donor to the party, beyond that he also likes to hire people from that party. I would consider that no better or worse than what you see over there.

I like to look at these things with a more sober and moderate view.

Stefan
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Stefan

Why would they the Chinese market is if it has not already matched the EU and US market combined it eventually will, if you want to grow you need to be there.

I also find the the Chinese government if you look beyond the rhetoric of calling games Opium and what they actually request to be fairly normal and even something i would support in the west. But free news being based on clickbait and sensationalism they give the impression that they wish to shut down games completely.

While in reality we are speaking of kids up to 16 not being allowed past 10 pm to game unless there a parental approval through facial recognition, Tencent has even proposed that they are willing to block games for kids under the 12 in general, but i think that is more posturing than anything else.

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Bruno Brito

I agree with the concept that we know little about China to make a decision, specially considering your point above about any country requiring you to be politically connected to be successful. Fran Townsend is at Activision because of those connections and they keep her there.

Maybe that’s the western culture in me speaking. Most companies wouldn’t like being tossed like a ragdoll like Tencent is, even if it’s all posturing.

Stefan
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Stefan

That is very true, i think our understanding about China is rather limited i hope to be able to start on this book soon to give me greater understanding of their views in multiple industries, https://www.pascalcoppens.com/chinas-new-normal-about-the-book

I think we from a more individualist and liberal background all become rather worried when a government starts to dictates rules to an organization, but part of me does not object to that because i do find that companies of that size have a social responsibility to the communities they operate in and while it is an unpopular opinion i do believe there is some merit in the choices they make.

Also it is a shame that news we generally get is so black and white, based on extremes and generalizations so as an outsider looking in you only generally see that, i caught myself looking at China like i used to look at the USA, merely focusing on the extremes as that is what you generally get shown.

Ernost
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Ernost

Why would a corporation want to leave a massive market that most western companies are desperately trying to enter?

Turing fail
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Turing fail

Spiritual Opium is Best Opium!

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Paragon Lost

Good time to buy their and Tencent’s stock probably.

Stefan
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Stefan

Kinda late for that actually, already on the way back up since last week. In general if you have the money Tencent is a good company to invest in if you look how diverse their products are and how many stakes they hold all over the place.

If that is a bit risky to your liking there is also still the holding Prosus that has a major stake in the company, i personally give preference to that, for just in case something drastic happens in China.

Stefan
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Stefan

This is being a bit overblown, the problem is not that underage players might see more restrictions or even a full out ban, they are after all a rather small segment of the gaming industry.

It did create a bit of uncertainty but China is not out to destroy Tencent, they merely want to hold them accountable but it does make investors less trigger happy.

Fully expect them to rebound, not that i would advise buying that stock. You were better off getting tencent stock on the drop, as its stock price is climbing again.

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angrakhan

Yeah but you’re talking about investors trying to read the tea leaves of where things can/may go, not where things are. The language used by the Chinese government was a clear shot over the bow of the industry that basically said “if we choose to, we can shut you down, so start complying”. You can see the unspoken threat was certainly taken seriously by Tencent by how quickly they moved to implement changes. Investors heard it loud and clear to. An investor is not going to be so quick to dump millions into video game company so reliant on the whims of an autocratic, authoritarian government with a negative view of video games.

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bobfish

The article could do with pointing out that PUBG mobile (both versions), are made and published by Tencent, and that the impact on Krafton’s IPO was as a result of a significant part of its business being tied to a Chinese company that is currently quite volatile.

It isn’t so much what happens with Chinese gamers that is the problem, rather that the Chinese company operates those games globally and it could affect the global business.

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Paragon Lost

Thought that was quite apparent. The impact China has on the global market is not to be ignored and very much felt across all types of development and manufacturing. Seriously their impact needs to be curtailed but I don’t see other countries getting together any time soon to do something about it.

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bobfish

Yes, but my point was, if Tencent was just an investor or the publisher of the games in China, it wouldn’t have had the impact it did. The fact that it makes two of Krafton’s most successful games is why it had that impact.

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Paragon Lost

Gotcha, sorry about that. I felt it was obvious to me and I only follow this stuff from a distance at best. You’re right making that point wouldn’t be a bad thing. :)

Stefan
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Stefan

There is actually a history as to how China reacts to an industry it wants them to change, nothing to do with reading tea leaves.

Tencent first and foremost is more than just a gaming company it is also so integrated in the Chinese day to day life that shutting it down would have far reaching impact, China’s government is out to regulate not shut down companies willy nilly, the education sector they shut down where a lot of this angst is based on had their -first- warning in 2018, it became a major social issue what led to a shut down, the shut down could have been avoided but the industry continued to enlist teachers who neglected their actual school duties to give priority to online teaching.

China gets far too much of a bad reputation, while i am no fan of authoritarian regimes they are not evil incarnate when it comes to dealing with businesses.
Honestly, when their companies cross the line they actually act, i would like that trend to continue globally.

There is quite some good lecture on how China has progressed and deals with industry.