Virus Quarantines in China Spur Tencent, NetEase Gaming Surge

Active users of mobile games developed by Tencent Holdings Ltd. and NetEase Inc. have surged in China as quarantines keep people at home, underscoring the relative outperformance of their shares amid the coronavirus-driven market tumult.

For Mahjong and Game For Peace, two of Tencent’s most popular titles, daily active users increased 109% and 44%, respectively, in the two months through February, according to App Store data from mobile app researcher Apptopia Inc. Other Tencent games including Honor of Kings, Happy Poker, and QQ Speed have also seen usage increases of more than 20% over the two-month period.

The spike in game-playing comes as more people in China have been subject to quarantines as part of the nation’s attempt to contain the coronavirus, which has spread from the city of Wuhan throughout the world. At least 80,000 cases have been reported in China, and the illness has killed almost 3,000 people there.

“Online entertainment and gaming clearly benefit as people are locked down in their homes as supported by active users and time spent increases,” Dara White and Derek Lin, who help manage $494 billion of assets at Columbia Threadneedle, said by email. “During this period, these companies should be more defensive. However, user penetration and consumption activities in this area are relatively mature and thus debatable if it has any longer lasting impact on earnings and stock prices.”

The Netease-produced game Werewolves of Miller’s Hollow has also seen its daily active users more than double since December, with growth of 131% in China. A majority of the surge in game-playing began in late January after coronavirus quarantines kept people indoors during the Chinese New Year, limiting their entertainment options.

This year’s increase was more than double the growth seen during the previous Chinese New Year holiday period. Aggregate DAUs across all six games grew 48% from December 2019 to February 2020, compared with 19% in the year-ago period.

Both Tencent and NetEase have outperformed the Hang Seng Index by more than 10% this year. And analysts see more gains ahead for stocks tied to in-home entertainment as more people steer clear of the outbreak and look for ways to pass the time at home.

— With assistance by Tom Lagerman, Marvin Chan, Colleen McElroy, and Yuyou Cheng