WeFire is the new mobile shooter Tencent has high hopes for.

AUG. 14, 2015 • Tencent Holdings Ltd. continues to be a leader in PC online games and is increasingly looking to grow its presence in the competitive mobile game business. Surprisingly, Tencent second quarter growth in mobile games revenue was somewhat stagnant. Compared to the first quarter, online computer games saw revenue of 12.97 billion yuan ($2 billion), showing year-over-year growth of 17% compared to 28% during the first quarter. However, smartphone games saw revenue of 4.5 billion yuan ($703 million) but a precipitous drop in growth for the quarter from 82% to 11% on a year-over-year basis. Total revenue for the quarter grew 19% to 23.43 billion yuan ($3.67 billion). Tencent’s online advertising grew 97% to 4.07 billion yuan ($636 million). WeChat, China’s most popular messaging app, saw year-over-year growth in monthly active users of 37% to 600 million.

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Impact: Tencent’s online PC game portfolio is fairly mature and growth will simply not be as fast.  That’s one of the primary reasons why the company has placed so much emphasis on building its smartphone game business. In Q1 2014 mobile game revenue was 1.8 billion yuan ($289 million), so the segment has seen impressive growth overall. However, it appears that growth may be slowing. The question is whether the mobile opportunity for Tencent is simply not as big as the online computer game opportunity?  The company did not give a reason why revenue growth fell off so sharply for its mobile titles. Tencent says it continues to do very well with playing card, shooting, running and fighter plane games on mobile. So what’s the problem? Reading between the lines of the second quarter results announcement, Tencent seems focused on new smartphone game content that redefines existing genres, or creates new genres. Part of that mission is being put on the shoulders of a new shooter called WeFire, as well as “extending” leading PC IP like FIFA Online 3 to mobile. If this is the cure, we suspect the symptom might be too many me-too smartphone games flooding the Chinese market and consumers there reacting accordingly. With China it is tough to tell since reporting is all over the map. Luckily for Tencent, the strength of WeChat is buoying advertising revenue. Yet cranking up mobile game growth rates remains a major issue that needs attention for the long run.