NetEase Market Cap Drops Amid Competition from Tencent's Upcoming Game

According to Yahoo News, NetEase Inc. has experienced a loss of approximately $7 billion in market capitalization this week due to concerns about competition from Tencent Holdings Ltd.'s upcoming party game. NetEase's stock dropped as much as 5.5% in Hong Kong on Tuesday, extending its losses this week to almost 11%. Tencent announced on Saturday that it would launch its new game, Dream Star, on December 15 across platforms. The highly-anticipated release of Dream Star will pose direct competition to NetEase's popular title Eggy Party, which is among China's most downloaded mobile games. Despite the stock's 39% rally this year, it has underperformed the benchmark gauge's 17% drop. Goldman Sachs Group Inc. analyst Lincoln Kong noted that the competition between Dream Star and Eggy Party on users and time spent will be crucial to watch and a possible near-term market concern. Tencent's Dream Star will feature players competing on different maps and attempting to knock out their opponents, among other activities. The Chinese gaming company plans to invest 1.4 billion yuan ($196 million) in developing its content. Tencent's shares also fell as much as 2.17% on Tuesday amid broader market weakness. Goldman Sachs anticipates that the total addressable market will expand quickly and cater to many other users, avoiding a situation where the two players merely eat into each other's market share. The Wall Street Bank expects Dream Star to generate gross sales of up to 6 billion yuan in the first 12 months and cites user growth, retention, and iOS rankings as key catalysts to watch after the release this month. It projects Eggy Party's sales to drop to as low as 4 billion yuan in 2024, down from more than 7 billion yuan this year.