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U.S. Ban Could Have Major Implications for Video Game Industry

While the president had been attacking TikTok, the addition of WeChat and Tencent to the ban was a surprise.

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U.S. President Donald Trump escalated the trade war with China via executive orders that ban U.S. transactions with the TikTok and WeChat apps and their respective owners, ByteDance and Tencent, effective 45 days from Aug. 7. While the president had been attacking TikTok, the addition of WeChat and Tencent to the ban was a surprise. The language in the orders is broad, and the specific banned transactions will be defined by the secretary of commerce before the 45-day deadline.

While WeChat has a limited user base outside China, Tencent is the largest video game software firm globally by revenue thanks to its dominant position in China and its numerous investments. The four video game publishers we cover--Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two Interactive Software (TTWO), and Ubisoft (UBI)--have some involvement with Tencent, ranging from direct investments to copublishing games in China. Given the lack of detail on the banned transactions along with news reports indicating that the order is targeted at WeChat, we are maintaining our narrow moat ratings and fair value estimates for the four firms. However, we remain watchful for any further specifics and potential changes in the aim of the executive order.

Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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