Key Takeaways:

Huya is looking to use the APKpure acquisition to better promote and distribute games internationally
Tencent is eager to divest non-core businesses as the Chinese government continues to tighten gaming regulations

By Li Shi Ta

First an animation platform, now an app store. Tencent Holdings Ltd. (OTC:TCEHY) has been doing some end-of-year decluttering.

The tech titan sold Tencent Animation to China Literature Ltd. (OTC:CHLLF) two weeks ago. And on Dec. 22, the livestream gaming company Huya Inc. (NYSE:HUYA) revealed in a U.S. securities filing that it had bought a global provider of mobile app services from Tencent for an initial price tag of $81 million (580 million yuan).

Huya did not name the acquired company, but media outlets reported that Tencent’s overseas app store, APKpure, was the business in question.

With the purchase, Huya is looking to boost its ability to promote and distribute international gaming apps, as well as fostering synergy with its own overseas livestream gaming platform, NimoTV. Investors welcomed the APKpure acquisition as a positive strategy move, sending Huya’s stock price around 4% higher on Dec. 26.

APKpure, bought by Tencent in 2021 from another Internet company, is an international app store specializing in providing the most complete versions of various apps, games and programs.

Both China Literature and Huya can use their new assets to drive their existing businesses. Meanwhile, Tencent is intent on splitting off peripheral parts of its sprawling tech empire as the Chinese authorities tighten the screws on the gaming sector.

Policy Straitjacket

The government has rolled out a series of measures to limit minors’ exposure to internet gaming. In the latest move, regulators published a set of draft rules on Dec. 22 designed to restrict rewards and incentives for gamers. The document from the National Press and Publication Administration outlined curbs on inducements for daily sign-ins and in-game purchases, as well as a crackdown on reward schemes such as auctions of virtual gaming props.

After the proposed rules were unveiled, shares in gaming company NetEase (9999.HK) plunged 24.6% and Tencent’s stock shed more than 12.4%. The two giants had a combined HK$504.5 billion wiped off their market value.

With the gaming sector in turmoil, state broadcaster CCTV said on Dec. 23 that the authorities had decided to review the proposals in light of stakeholders’ concerns and were open to tweaking the measures. Market watchers speculated that the regulators might revise caps on the amount of in-game purchasing and the permitted number of logged-in hours.

Whatever the outcome, Tencent is determined to trim the fat. Tencent President Martin Lau said last month the company would focus on activities with high growth potential and would downsize low-margin businesses. The company has also been working in recent years on cutting costs and boosting efficiency.

A Business Clear-Out

Tencent has been shutting down various non-core operations since last year. And market data shows it has made new investments in only 35 companies since the start of 2023, the lowest number in nearly a decade.

Among the discontinued services and products over the past two years are Tencent Todo, the audio platform Penguin FM, Tencent’s e-commerce QQ Store, the livestream platform Penguin Gaming and the news product Kandian Kuaibao. The social media platform NOW livestreaming also went offline at the end of the month, with its users moving to Huya.

Meanwhile, Huya has been looking for new growth engines as the frenzy for livestream gaming fades. The company’s latest results show revenues fell 30.7% to 1.65 billion yuan in the third quarter from the year-earlier period and slipped 10% from 1.82 billion yuan in the preceding quarter. Revenues have been falling for eight consecutive quarters since the final quarter of 2021.

More than 90% of Huya’s revenue comes from livestreaming, which has been under sustained regulatory pressure. Livestreaming income in the third quarter of 2023 was 1.53 billion yuan, down 24% from the same period last year, while the number of paying users in the quarter fell from 5.5 million to 4.2 million.

And the woes keep piling up. A highly popular Huya anchor who live-streamed the game Honor of Kings, Zhang Daxian, defected to the rival livestreaming platform Douyin. His first Douyin livestream on Dec. 2 attracted more than 60 million viewers. The loss of market-leading anchors has cost the platform many users.

Seeking Game Changers

Huya has been looking to develop less controversial gaming-related services to bolster its growth prospects. These include gaming distribution, gaming prop sales, in-gaming advertising and other operations that face less regulatory pressure. The acquisition of APKpure fits into this strategic context.

Tencent is a major Huya shareholder, holding 46.7% of its shares and 70.3% of the voting rights at the end of March 2023. Six months ago, Tencent Vice President Lin Songtao replaced Huang Lingdong as Huya’s chairman. And three months ago, Dong Rongjie, who led Huya’s IPO, stepped down as chief executive to be succeeded by senior VP Huang Junhao and financial VP Wu Xin as co-CEOs.

Notably, Lin headed many of Tencent’s key projects such as the instant messaging app QQ, QZone, Open Platform and the software management app Yingyongbao. Even as Huya’s chairman, he will continue to hold Tencent positions and oversee the Yingyongbao project.

Lin has described Huya as being on a three-year mission to boost gaming-related services as a proportion of revenue, seeking to build a more balanced income structure for long-term growth.

Falling revenue is a common problem among livestream gaming companies, and over-reliance on a single revenue source could harm future prospects.

Facing fierce competition from Douyin and Bilibili (NASDAQ:BILI), Huya badly needs new growth drivers after losing top anchors. The latest deal may be just a fat-trimming exercise for Tencent, but for Huya it could prove to be more of a game changer.

This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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