PRX Prosus NV

By Jiahui Huang and Mauro Orru

Global gaming stocks sank after Beijing released draft regulations for the online game industry that included restrictions on incentives to play or spend more online.

Shares of Netease, one of China's major online gaming companies, fell some 25% in Hong Kong. Tencent Holdings, the Chinese tech juggernaut that is also a domestic gaming giant, ended the day down more than 12%--wiping out $46 billion in market value and representing its largest one-day share loss since 2008.

In Europe, shares of Prosus, which holds a large stake in Tencent, slumped 17%. Shares of Assassin's Creed maker Ubisoft Entertainment plunged almost 8% in early morning trading in Paris.

Meanwhile in the U.S., Electronic Arts and Take-Two Interactive Software shares were down more than 1% premarket, while Microsoft--which closed its $75 billion acquisition of Activision Blizzard in October--was down 0.3%.

The rout came after China's National Press and Publication Administration, the country's media and videogame regulator, proposed curbs to users' in-game spending as well as banning minors from tipping players and hosts who livestream games.

The regulations would also prevent companies from offering probability-based lottery services to minors. Game companies wouldn't be allowed to set rewards that might encourage more time or money being spent online, including incentives for daily logins and maximum amount of recharges according to the draft rules.

The National Press and Publication Administration said it is seeking public comment on the rules until Jan. 22.

If implemented, the draft regulations would mark another crackdown on China's lucrative gaming industry. Beijing in 2021 issued strict measures aimed at curbing what authorities described as youth videogame addiction, banning minors from playing videogames during the school week.

Sebastian Patulea, vice president at Jefferies's equity research department, said the unexpected nature of the draft legislation is a stark reminder to the market that Beijing is very much focused on lowering in-game engagement.

"This doesn't help with stock sentiment given, by and large, investors thought this chapter has mostly ended. In our view, videogame developers that charge on a per-engagement model will continue to see headwinds," Patulea said.

China is a key market for the gaming industry. The country was the second largest gaming market globally in 2022 after the U.S. by sales, according to gaming-market research firm Newzoo.

The proposals could lead to a reduction in player monetization, hitting revenue and profit margins for gaming companies operating in one of the industry's biggest markets, Equita SIM analyst Gianmarco Bonacina wrote in a research note.

--Adria Calatayud contributed to this article.

Write to Jiahui Huang at jiahui.huang@wsj.com and Mauro Orru at mauro.orru@wsj.com

(END) Dow Jones Newswires

December 22, 2023 06:58 ET (11:58 GMT)

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