Tencent's DnF Mobile Outperforms Rivals, Signaling Strong Growth in Domestic Game Revenue

Tencent Holdings Ltd.'s DnF Mobile has more than doubled the sales of the longstanding Chinese best-seller Honor of Kings in its first month, suggesting that the online entertainment leader may have finally found a marquee franchise to replace aging titles. The Nexon Co.-produced title generated $270 million on iOS within 30 days of its launch on May 21, surpassing analyst expectations and marking the biggest debut of the year for Tencent.

Impressive Launch Performance

According to industry tracker Sensor Tower, DnF Mobile topped both download and revenue charts in China in its first month. This exceptional performance has led analysts to revise their estimates for the game's 2024 gross revenue to between 15 billion yuan ($2.1 billion) and 18 billion yuan. Even at around $1 billion, DnF Mobile would contribute approximately 5% of Tencent's domestic game sales this year, highlighting its significant impact.

Tencent accelerated the release of DnF Mobile in May following positive feedback during testing, positioning the game as a blockbuster that would rejuvenate growth in its key domestic games division. This strategy appears to be paying off, with the game's success marking it as the best candidate to generate recurring revenue akin to Honor of Kings, which has long been China's most lucrative title.

Marketing and Strategic Shifts

Tencent has aggressively marketed DnF Mobile, enlisting A-list Chinese actor Dilraba Dilmurat as the brand ambassador and offering cash prizes to players who invite their WeChat contacts to join. At one point, Tencent even inserted animated ads for the game into WeChat conversations that mentioned its title or related terms like "warrior."

The game's China launch was delayed due to a pause in Beijing's approval of new game releases, but this did not diminish its appeal in the world's largest games market. The initial success of DnF Mobile has prompted Tencent to reconsider traditional distribution models. The company recently pulled DnF Mobile from Android app stores operated by Chinese smartphone makers such as Huawei Technologies Co. and Oppo, citing unspecified "adjustments" in their collaborations.

Rethinking Distribution Models

Tencent executives have long been frustrated by the up-to-50% commission that these app stores take from in-game purchases. With DnF Mobile, Tencent decided to bypass these middlemen, encouraging users to download the game directly from its own sources. This move is expected to positively impact Tencent's margins and its online entertainment business, as noted by brokerages including Citi.

Tencent has relied heavily on WeChat and fee-free third-party stores like TapTap to distribute DnF Mobile. Dash Huang, founder of TapTap operator XD Inc., expressed confidence in the game's performance, stating that DnF Mobile faces no pressure from cutting ties with Chinese Android stores.

However, DnF Mobile will face rising competition this summer, with up-and-coming studio Mihoyo slated to release its action title Zenless Zone Zero on July 4. Featuring similar hack-and-slash combat and an anime theme, Zenless Zone Zero may appeal to a broader audience, adding competitive pressure to Tencent's new hit.

Overall, the success of DnF Mobile positions Tencent well to grow its domestic games revenue slightly faster in 2024 compared to 2023. This development also sets Nexon up for a 19% annual growth in mobile game revenue from 2023 to 2026, showcasing the potential long-term impact of this new franchise.

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