From Morningstar:

NetEase is under review following China’s new draft regulations in the gaming sector. These new rules may have a substantial impact on NetEase’s revenue, with share prices dropping more than 10%. But Tencent and CMGE Technology appear to face less severe impacts, maintaining their current fair value estimates as we wait for further information from gaming companies.

New draft regulations could eliminate daily login rewards and bonuses, leading to reduced player engagement and in-app revenue. In addition, the conversion of in-game assets into real cash will be prohibited, affecting companies like NetEase and their MMORPGs. Furthermore, game providers will need to offer alternative methods for acquiring virtual items, potentially diminishing the value of loot boxes.

The removal of incentives like daily login rewards and the prohibition of converting in-game assets into cash will likely reduce player engagement and in-app revenue. Gaming companies, such as NetEase, could be forced to make fundamental changes to their game design and monetization strategies. This could also affect companies offering massively multiplayer online role-playing games (MMORPGs).



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