Recently Snap Inc (NYSE:SNAP) announced that Chinese tech company Tencent had made an investment in the disappearing-message firm. According to Reuters Tencent added that it intends to assist Snapchat to publish video games with a view to improving ad sales.
“The investment enables Tencent to explore cooperation opportunities with the company on mobile games publishing and newsfeed as well as to share its financial returns from the growth of its businesses and monetization in the future,” a Tencent executive told Reuters.
With Snap having experienced slowing growth in the user numbers as well declining revenue growth rates, video games are likely to impact Snap positively. Since Snap was listed earlier in the year the shares have fallen by 47.9%.
Currently Tencent is the global leader in gaming and its association with Snap is likely to lead to user growth once the games are made available on Snapchat’s platform. League of Legends, a game which was developed by a Tencent-owned firm Riot Games, is presently the most popular game on personal computers in Europe and in the United States.
Though there has been a high demand for video gaming consoles such as the Nintendo Switch, Sony Corp (ADR)(NYSE:SNE) PlayStation 4 and Microsoft Corporation (NASDAQ:MSFT) Xbox One, mobile games have been enjoying rapid growth rates. According to Newzoo in the five years revenues from mobile games are expected to grow at a rate of between 32% and 40% making them highly lucrative. In 2017 revenues from mobile games will account for approximately 42% of market for games.
Last year, Facebook Inc (NASDAQ:FB), unveiled Instant Games on some of its platforms including Messenger after collaborating with various developers of mobile games. Thus the entry of Snapchat into games might assist in fighting competition presented by Facebook-owned Instagram which now has a total addressable market that is three times Snapchat’s.
In Tencent’s third quarter this year, revenues generated from games reached a figure of $4.3 billion. The first time Tencent invested in Snap was in 2013 but now owns non-voting shares totalling 145.78 million which is about 10% of Snap’s basic stock.
In Monday’s trading session shares of Snap Inc edged downwards by 2.82% to close the day at $12.40.