Could Tencent Be The Ultimate Play On Metaverse? Here's What The Company Says

The largest video game company in the world is the latest big company to announce plans to invest heavily in growth of the metaverse.

What Happened:Tencent Holdings Inc TCEHY, the owner of popular video game companies and games, is planning to connect its video games to the metaverse.

Metaverse was a hot topic in the question-and-answer portion of Tencent’s third-quarter earnings call. Executives took turns highlighting plans of getting into the metaverse.

Tencent said one way to grow in the metaverse is through a social network that is “gamified and supports much more programmable experiences.”

“So while social networks such as Meta itself and Snap have the most capital resources, they also have a good amount of work to do,” Tencent Chief Strategy Officer James Mitchell said.

Tencent executives also highlighted the increased use of augmented reality and virtual reality, something that Facebook Inc FB highlighted when it announced plans to change its name to Meta.

Tencent was asked about creating a rival product to the virtual reality-focused Oculus from Facebook. Executives noted that hardware will be important for the metaverse but not a “necessary condition.”

“The driving force of metaverse will still be software-driven and the technology that really helps us to provide the user experience, be it engine technology, be it the ability to provide better, real experience,” Tencent President Martin Lau said.

Related Link: 10 Augmented And Virtual Reality Stocks To Watch On The Heels Of Facebook's Meta Rebrand

Why It’s Important: Video games are the largest revenue driver for Tencent and the company is the largest video game company in the world. As video games become a big entry point for the metaverse, Tencent could have a lot to gain given its strong position in the industry.

Tencent owns Riot Games, the maker of “League of Legends,” one of the biggest video game franchises of all time. Tencent also owns a stake in Epic Games, the company behind the hit “Fortnite.” Tencent has a joint venture with Roblox Corp RBLX.

The intellectual property opportunities could be vast for the company with its video game ownership and its strong presence in the social network space, with Weixin and WeChat having 1.26 billion monthly active users combined.

“It will be an addition to the gaming industry, it will also be an addition to the social networking industry, and in some cases, when you have real life applications like business applications, it actually also can be a growth engine for that industry as well,” Lau said.

Lau said a gaming platform could provide the infrastructure to create different games for the metaverse and social networks can be gamified for the metaverse as well.

“We felt we actually have a lot of the technology and know-how building blocks for us to explore and develop for the amount of various opportunities.”

Tencent reported third-quarter revenue that was up 13% year-over-year. International games were a big growth driver with 20% year-over-year growth. The company reported social networks making up 21% of quarterly revenue, international games at 8% and domestic games at 24%. Together, the company’s gaming segments made up 32% of quarterly revenue, outpacing the fintech segment at 30%.

TCEHY Price Action: TCEHY shares were trading 0.94% higher at $62.78 Thursday afternoon. Shares are down 14% year-to-date.