Tencent, NetEase stand out in the global race to the metaverse as large users and early bets on games bode well, Credit Suisse says

  • China’s two largest game companies, Tencent and NetEase, will stand out in the global metaverse race, says Credit Suisse
  • As the web transforms into an immersive, three dimensional world, internet platforms could also profit from virtual events, marketing campaigns

Tencent Holdings and NetEase will stand out in the race to the metaverse, as their large population of users and early investments in related infrastructure bode well for new businesses stemming from the web’s transformation into an immersive, three-dimensional online world, Credit Suisse said.

China’s top internet and games publishers are among a list of 35 global stock picks identified in the Metaverse: a guide to the next gen internet report released this week by Credit Suisse. A relatively new frontier for the web, the metaverse ecosystem is made up of five components including infrastructure, hardware, content, platform, and payment mechanism, it said.

While Chinese tech companies are still catching up on metaverse compared to their US counterparts, Tencent and NetEase have already made some headways in hosting virtual events and activities.

These avatar-based concerts and conferences, hosted on virtual events platforms such as NetEase’s Yaotai, even presented the Hong Kong stock exchange listing ceremony of its own music streaming unit NetEase Cloud Village last November. Tencent Music hosted its own music festival “Tmeland” where participants, all represented by avatars, interacted with each other.

“The metaverse is currently still at a very nascent stage in China given tight regulations on cryptocurrency exchanges,” Credit Suisse analysts including Kenneth Fong and Ivy Ji wrote in the report.

Beijing’s outright ban on cryptocurrency trading and regulators’ cautious stance against non fungible tokens (NFTs) have meant that certain form of metaverse gaming development will unlikely take off in China.

Popular NFT games based on the “play-to-earn” model, such as Axie Infinity, the popular blockchain-based game which allows players to earn tokens and trade in-game assets in real world digital exchanges, will be likely to face big challenges in China, Credit Suisse analysts said.

Still, Chinese companies such as Tencent and NetEase are increasingly investing into metaverse games. Tencent has published LuoBuLeSi, which is a China version of Roblox, an online game platform which lets users operate a virtual avatar and play games built by other users.

NetEase, China’s second-largest publisher of online games after Tencent, has also invested in the metaverse social network IMVU, and some sandbox games such as Minecraft. China is the world’s largest online game market with 666 million gamers.

These internet platforms’ vast social network user base could also help them tap other opportunities in the metaverse.

The combined monthly average users for Tencent’s social media super app Weixin and WeChat, stood at 1.26 billion as of September 2021. This would open up virtual marketing and branding campaigns for Tencent through the metaverse, said Credit Suisse’s analyst Soyun Shin at a media briefing on the report Thursday.

“The largest platform in each country is best positioned to develop virtual marketing campaigns and [other] commercial [opportunities],” said Shin.

Tencent stock rose 0.6 per cent to close on Thursday at HK$479, below the target price of HK$596.92 predicted by Credit Suisse. NetEase advanced 0.8 per cent to HK$158.90, compared with the target price of HK$224.75.

Author: Georgina Lee, SCMP

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