Blizzard Competitive Intelligence

Blizzard : Competitive Analysis |0
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Activision
Blizzard
[Document subtitle]
Hadley May, Alex Trabold, Juan Ulloa

Blizzard: Competitive Analysis |1
Table of Contents
Key Findings and Strategic Implications ......................................................................................................... 3
Key Intelligence Topics & Questions .............................................................................................................. 5
Blizzard & Tencent ........................................................................................................................................... 5
............................................................................................................................................................................ 8
Company Overview: Business Intelligence..................................................................................................... 8
Executive Summary: ......................................................................................................................................... 9
Key Strengths: ................................................................................................................................................... 9
Key Weaknesses:............................................................................................................................................. 10
Value Chain Analysis ..................................................................................................................................... 11
Primary Activities ........................................................................................................................................... 11
Secondary Activities ....................................................................................................................................... 12
.......................................................................................................................................................................... 13
Competitor Analysis ....................................................................................................................................... 13
Executive Summary: ....................................................................................................................................... 14
Discussion:....................................................................................................................................................... 14
Analysis of Management team ....................................................................................................................... 19
Executive summary: ........................................................................................................................................ 22
Discussion:....................................................................................................................................................... 22
Executive Summary ........................................................................................................................................ 26
Locations.......................................................................................................................................................... 26
Company Overview ........................................................................................................................................ 26
Staff .................................................................................................................................................................. 27
Discussion ........................................................................................................................................................ 27
Discussion:....................................................................................................................................................... 29
Discussion:....................................................................................................................................................... 33
Discussion:....................................................................................................................................................... 37
Discussion:....................................................................................................................................................... 39
Porters Four Corners ....................................................................................................................................... 44
Future Strategy: ............................................................................................................................................... 45
Drivers: ............................................................................................................................................................ 45
Current Strategies:........................................................................................................................................... 46
Assumptions: ................................................................................................................................................... 47
Capabilities: ..................................................................................................................................................... 48
Tencent Financial Ratio Analysis .................................................................................................................. 49
Discussion:....................................................................................................................................................... 50
Liquidity........................................................................................................................................................... 51
Leverage and Solvency ................................................................................................................................... 52
Activity and Efficiency ................................................................................................................................... 53
Profitability ...................................................................................................................................................... 54
Capital Market and Shareholders’ Return ..................................................................................................... 56
Macro-Environmental Analysis ................................................................................................................... 58
Key Trends and Implications.......................................................................................................................... 58
Social................................................................................................................................................................ 59
Technology ...................................................................................................................................................... 60
Ecological ........................................................................................................................................................ 62
Economic ......................................................................................................................................................... 64
Political ............................................................................................................................................................ 65
SWOT Analysis..................................................................................................................................... 68
Executive Summary: ............................................................................................................................. 69
Strengths/Opportunities Strategies: ....................................................................................................... 69
Strengths/Threats Strategies: ................................................................................................................. 70
Weaknesses/Opportunities Strategies: .................................................................................................. 70
Weaknesses/Threats Strategies: ............................................................................................................ 71
Key Findings and Strategic Implications
Key Findings Sources Implications for Activision Blizzard
PRIORITY: A HIGHEST
IMPACT
1. Tencent’s 5% stake in  Competitor Activision Blizzard should consider upscale growth to

Activision Blizzard, and profile guard against a possible acquisition or takeover bid by
its subsequent growth Tencent. Activision Blizzard’s successes with Overwatch
from $300 billion to $500 and Call of Duty WW2 demonstrated the company’s
billon profitability and its ability to innovate. Minor stakes by
Tencent usually escalate to merger or acquisition bids
after several years of success.
2. Tencent is diversifying its  Competitor Again, Activision Blizzard should increasingly look for
portfolio outside of china profile signs of a possible merger or acquisition in the near
and has already acquired at future (5-10 years). Tencent already acquired 1 US
least 2 foreign gaming gaming company, acquiring another established brand
companies. makes sense given Tencent’s previous patter of
acquisitions.
3. Rapid increase of AI  Macro Activision Blizzard should prioritize the safe

(mostly deep learning)  Competitor development and rollout of newer and smarter AI. There
within all industries, analysis is always an advantage in being a first mover within any
especially tech.  SWOT industry, however the gaming industry is slightly
different, the rollout must be cautious and methodical to
avoid botched releases and the cessation of customers to
other industry leaders.
PRIORITY: B Medium
Impact
4. Increased presence of  Macro Activision Blizzard should continue to increase its
social media in all spectra  Competitor already sizable presence on social media. Blizzard
of life and business profile currently advertises on YouTube through cinematic
including, Advertising,  SWOT trailers, teasers, etc. Increasing their presence through
Politics, and the gaming YouTube celebrity sponsorships, paid advertising, and
industry. web series would solidify their presence while also
becoming a PR win.
5. Rejection of over  Macro Activision should avoid changing the monetization

monetization by gamers  SWOT models of their games if possible. EA’s changed the
within multiple genres monetization scheme of Battlefront 2, it proved
disastrous. To date the game sold less copies than the
original reboot, backlash from the game’s monetization
scheme prompted investigations by the EU and US
officials. Keeping monetization constant would be a PR
win and increase company stability.
6. Growth of popular startups  SWOT If Activision Blizzard ignores the rise of startup video
akin to Bluehole. The game companies, it will likely fall behind in the industry.
developer of PUBG, a Startups like Bluehole are increasingly viable within the
massively successful title. industry and have the potential to take a large chunk of
the market share from established companies like EA and
Blizzard.
In addition, Activision Blizzard could possibly aim for

acquisition attempts. Upscale growth could potentially
solve for Tencent, diversify their limited portfolio, and
keep the company perennially current.
PRIORITY: C Low Impact
7. Increasing environmental  Competitor Ignoring increasing environmental consciousness could

consciousness among profile put Activision Blizzard in an awkward position in the
consumers.  Macro public sphere.
 SWOT
8.
Key Intelligence Topics & Questions
Blizzard & Tencent
Tasking-
Michael Morhaime, President and co-founder of Blizzard, has tasked a business intelligence
team at Mercyhurst University to plan, collect, analyze, and disseminate key market trends and top
competitor strategies. The analysts will be utilizing open source information to focus on Tencent, one of
Blizzard’s top competitors in the video game industry. The analysts will also research the video gaming
industry and macro-environmental trends (e.g., social, technological) that could offer opportunities or
identify potential threats. Commented [FS1]: Industry and macro should be
separated
Key Intelligence Topics-
Competitors
1) Identify Tencent’s top strategies with the last three years.
 How did Tencent market their top brands for the past three years? What are the top
brands themselves and where are they going? What was appealing about their products to
a mass audience? What strategies (e.g., social media, partnering) did they use?
 Will Tencent be a first mover in the video game and anime industry within the next three
years? What products do they seem to be putting the most importance on? What
strategies are they implementing e.g. marketing, PR strategies, an product strategies.
Macro-Environment
2) Identify trends within the macro-social environment and advancements within tech in the last 5
years.
 What are recent major social affecting millennials and Generation Z in the US? How do
these trends affect current attitudes towards video games and the buying habits of these
generations?
 What are some offerings in VR technology within the last year? How will VR be
incorporated into the macro environment beyond video games?
Industry
3) Identify new technologies and overall consumer trends related to the tech industry, particularly
the gaming industry.
 What new AI technology will be introduced within the gaming industry within the next 3
years?
 What are our target audiences moving forward, which US brands will be successful
moving forward. Moving forward what game markets across the world look the most
appealing.
Methodologies-
1) Business Intelligence and Value Chain Analysis
2) Competitor Profiling
3) Financial Analysis
4) STEEP Analysis (macroenvironmental analysis)
5) SWOT Analysis (strategic model)
Challenges-
1) Limited Time – the report is due mid-December
2) Limited Personnel – team only has three people
3) Limited Amount of Resources – can only collect only open source
4) Limited Experience – team has limited to no knowledge of business and competitive intelligence
experience
Resources-
1) Personnel – Three team members were assigned to complete this task
2) Open Source – Online news, financial resources, government websites, and other open sources
3) Time – The team was given a semester to complete this report
4) Institutional – Mercyhurst University provides access to exclusive databases such as LexisNexis
Administration-
The final written product and oral brief will be submitted by 13 December 2017.
Contact Information-
Hadley May
hmay35@lakers.mercyhurst.edu
Alexander Trabold
atrabo44@lakers.mercyhurst.edu
Juan Ulloa
julloa09@lakers.mercyhurst.edu
Company Overview: Business Intelligence

Executive Summary:
Activision Blizzard is a leader in the video game industry as evidenced by its recent videogame Commented [FS2]: Grammar??
successes (e.g. Overwatch and Call of Duty) and strong stock performance. Its stock has risen by nearly
400% over the last 5 years from 2013 to 2017 and became part of Tencent’s portfolio in 2013 (see figure
1). Activision manages 5 flagship titles currently on the market, with games such as Overwatch and
Destiny 2 both grabbing large shares of their respective markets. But their weakness is that their success
lies solely on these flagship titles, they are under threat of being bought out by their competitors such as
Tencent, and the competition in a diverse and constantly evolving video game industry is tough and
ever-pressing.
Key Strengths: Commented [FS3]: Do not go bigger than 12 point font
 Flagship videogames: Activision Blizzards videogame portfolio includes some of the world’s
best games including: Call of Duty, Overwatch, and Destiny. Together these games account for
nearly 100 million players.1 Activision Blizzards most recent in-house videogame grossed nearly
a billion dollars over a one-year period.2
 E-sports leader: Activision Blizzard is an early mover in the e-sports arena. Activision Blizzard
recently sold franchising rights for the Overwatch league, and netted nearly $140 million with
seven franchises.3 Activision Blizzard also owns one of the most popular MOBAs, Heroes of the
Storm, that holds its world championship on a yearly basis.4
 Abundant Outside investors: Commented [FS4]: Write this as a strength…this isn’t’

clear as two words.
Tencents recent investment in
Activision Blizzard indicates
strong potential for future
growth in the US market.5
Speculation has arisen that the
US tech and entertainment
giant could try and acquire
Blizzard including Disney,
Twitter, and Apple.6 Figure 1: Four-year stock growth of Activision
Source: http://themoteyfool.com
B l i z z a r d : C o m p e t i t i v e A n a l y s i s | 10
Key Weaknesses:
 Overreliance on flagship games: Activision Blizzard relies on relatively few cash cows and
stars. The videogame community is notoriously fickle; botched releases, bugs7, and stale
gameplay8 can quickly lead to a games failure in a highly competitive market. If the cash cows Commented [FS5]: The DO have a few cash cows or
don’t? Overreliance of a flagship game sounds like a poorly
that Blizzard relies on such as World of Warcraft or Overwatch fall out of favor or get managed diversified portfolio and leaning on one or two cash cows.
This section was really unclear. Also I would give examples
by less competent developers, they would suffer a huge lose. of bugs, stale gameplay, etc. since you sourced them. this is
very unclear and confusing. Redo.
 Buyout potential: Tencents investment in the company foreshadows possible buyout attempts by
rivals. Recently, Tencent has acquired five percent of the company and has expanded greatly in
the US market elsewhere.9 Although, outside investing could be a strength, it is also a threat to
the company as investment could lead to further investment or acquisition.10
 Crowded videogame market: Although Activision Blizzard is a leader in the videogame Commented [FS6]: They can’t control this. this is
external. Reword it. Maybe their business model is in a
industry, the videogame market is oversaturated in nearly all genres. This has the potential to highly competitive market? that they can control by
diversifying.
drag down flagship titles.11 For example, Overwatch released in 2016 to widespread acclaim and
grabbed most of the market share for first person shooter MOBAs. However, soon after many
similar games rose to challenge Overwatch for a share of the market which could lead to
consumer fatigue in that genre.12 Activision can only control this market by coming up with new
Flagship games and having a diverse portfolio.
Value Chain Analysis
Primary Activities
Sales and
Operations Services
Marketing
Sales and Marketing: Activision Blizzard primarily sells its products B2B and offers products directly
to consumers. They even have a specific team of people dedicated to the marketing of their games using
special CGI trailers.13 Activisions consumer base encompasses both the casual and competitive gaming
spheres. As of quarter three 2017 Activision hosts 400 million concurrent users (MAU).14
Operations: Activision Blizzard is one of the premier entertainment developer within the United States
and throughout the world. Activision Blizzard employs over nine thousand employees in over 50
locations around the world, including Sydney, Munich, and Paris.15 These locations and employees are
spread out among the five different operating units of Activision Blizzard. Their headquarters are in
Santa Monica, California.16
Services: Activision Blizzard offers a variety of services; it’s most important being its major league
gaming channel.17Activision Blizzard allows its intellectual properties to be used in various toy lines as
well; including its well-known Skylanders franchise. They recently released a cartoon adaptation of the
series called Skylanders Academy on Netflix, giving the franchise multi-media appeal.18
Secondary Activities
Technology Human
Development Resources
Technology and Development: In 2015, Activision Blizzard bought Major League Gaming (MLG) for
$46 million dollars.19 In addition, they have also moved quickly to franchise two of their stars including
Heroes of the Storm and Overwatch. This acquisition gave Activision Blizzard access to a proven
platform for esports gaming. Previously, they relied on in-house promotions that could not reach as wide
an audience.
Human Resources: Activision Blizzard is number 66 on Fortune 100 best companies to work for list.20
Human resources goes to great lengths to keep its employees happy. 89 percent of the employees at
Activision Blizzard say their work experience is a great place to work according to employee reviews Commented [FS7]: According to who?
given about the company.21

Competitor Analysis
Background and Company Information
Executive Summary:
Cofounded by Ma Huateng and Zhang Zhidong in 1998, Tencent is now ranked among the top ten
largest companies globally.22 Tencents first breakthrough was their OICQ instant messaging software in
1999, that later became known as QQ messenger and was instrumental in the development of WeChat.
In the last three years, Tencent has made a name for themselves in the gaming industry with games such
as Honor of Kings and diversified their services to include game streaming, music, and banking.
Discussion:
Founding of Tencent
Tecent was founded in 1998 and became a
public company in 2004 and is listed on the
Hong Kong Stock Exchange.23 In the first
Figure 2: Tencents current logo
four years of founding, Tencent struggled but
Source: https://tinyurl.com/y9ff62n9
was then invested in by Naspers giving the
company the boost it needed to be successful.24 Tencents IPO is $11 billion. According to Tencents
about us page their mission is to enhance the quality of human life through Internet services.25 The logo
for Tencent still remains the same over nineteen years that they have existed (see figure 2). Tencent got
their start in 1999 with QQ messenger and has been building their repertoire of services and products
and created a wide variety, going from messaging to mobile banking.
The improvement of Tencents messaging apps

In 1999 Tencent launched OICQ instant messaging software. OICQ later became known as QQ due to
legal issues with ICQ.26 WeChat launched in January of 2011. Since its launch Tencent added many
other services to WeChat (e.g. send and receive money, shop at stores, book restaurants, order taxis,
arrange vacations).27 WeChat is known as China’s everything app, constant updates continually add
different services which increase the app’s longevity. As a result, the app now has 938 million monthly
active users.28
Tencent in the Gaming Industry

Many of the more popular mobile games in the past three years have been the product of Tencent.
Currently their mobile game Honor of Kings is Chinas most popular game with 55 million layers.29
Tencent has announced a new streaming site for games called WeGame that will rival the popular
streaming site Steam.30 Tencent is also expanding into the gaming industry as a way to integrate into the
US market with titles such as League of Legends and Arena of Valor.
Diversification of Services
Tencent is expanding the amount of services they offer, Tencent started with instant messaging in 1999
and now offers many services including mobile banking.31 Other services include WeGame: gaming
platform which improved from their 2013 service Tencent Gaming Platform, Tencent Comic: online
animation and comic platform, and QQ Music: music platform. Tencent is looking to expand further into
these services and into the international market.
Acquisitions and Investments

Tencents first acquisition was Shenzhen Domain Networks in 2010.32 Tencent has since been acquiring
around two organizations per year. The purchase of Riot Games, a gaming company, in 2015 will help
Tencent expand into the international market.33 Tencents first investment was Outspark, an anime style
MMORPG platform for gamers and developers, on January 1st, 2008. As of December 6th, 2017,
Tencent has invested in 219 companies and is the lead investor in 103.34 Tencents latest investment
being Medlinker which is a social service platform for certified doctors to exchange knowledge.
Management
Executive Summary:
Tencent utilizes Chinese insiders for product development and day-to-day operations while utilizing
outsiders to expand the company internationally. This is likely an attempt by Tencent to keep the
company running and growing smoothly. As insiders CIO Daniel Xu, and COO Mark Ren most likely
have vital experience navigating China’s censorship laws and government control.35 Outsiders
meanwhile have been a fixture at Tencent since Napers’ investment in the company. Naspers’ likely
forced this change in leadership to ensure its investment would be competitive in the international
market moving forward.36
Analysis of Management team

Prior recruitment of company outsiders to fill vital positions
During the company’s early days, Tencent focused on acquiring new talent as opposed to promoting
from within.37 This focus boiled down to one factor: time. Tencent was a new company looking to fill
vital positions and did not yet have a set corporate culture. As a result, 100% of executives hired from
2000-2002 were hired from outside of the company.
Shifting from hiring company outsiders to promoting from within
Ma Huateng is the CEO of Tencent. Out of the top 5 executives 2 hold business degrees while 3 hold
computer science degrees. Additionally, five executives also have degrees with embedded leadership in
the form of EMBAs including COO Mark Ren, SEVP SY Lau, and CFO John Lo.38 These degrees give
Tencent a solid leadership base moving forward as the company ages. This base will likely lead to a
shift from outside hiring to promoting from within, which will serve to enhance and preserve Tencent’s
corporate culture. In 2005, Tencent began promoting from within starting with Martin Lau; promoted
from CIO to President.39
Current team make-up
Positions key to the company’s strategy of expansion into the international market are staffed with
experienced outsiders. Martin Lau, James Mitchell, and David Wallerstein are key players in Tencent’s
bid to expand. David Wallerstein is the company’s Chief Exploration Officer and is tasked with
expanding Tencent in the international arena and in emerging technologies. Prior to his employment
with Tencent Wallerstein organized Naspers’ 37-million-dollar investment in Tencent. Naspers’ shares
are now worth nearly $132 billion.40 Additionally, Martin Lau (President) and James Mitchell (Chief
Strategy Officer) are both former employees of Goldman Sachs specializing in investment and analysis
of companies.
Tencent compensated its top executives extremely well in 2016 due to huge increases in the company’s
portfolio and valuation. Speculation regarding Tencent’s executive pay increased after the company
revealed it paid a top executive nearly $40 million in 2016, an amount which surpasses the pay of
executives in both Apple and IBM.41 The executive in question is likely to be the CEO Pony Ma
however, Tencent did not confirm the executive behind the salary.
Product and Service portfolio
Executive summary:
Tencent is China’s largest tech giant.42 Its large portfolio of products and services includes apps, video
games, entertainment services, and various tech products. Tencent is in the process of expanding its
portfolio with such additions as WeGame, QQ Comics, and Tencent Video Using the BCG matrix,
Tencent has many question marks (low market share, high market growth); these include: QQ comics
(introduced in March of 2012), Tencent Video (acquired October 2017), and WeGame (introduced in
April 2017). Tencent is also cashing in on its cash cows (high market share and growth) by monetizing
WeChat and continuing to support Honor of Kings and League of Legends (LoL).
Discussion:
Products
Tencent offers a variety of products including
video games, comics, and virtual reality (VR)
headsets. Tencent’s video game lineup
includes a variety of app based and internet
based games including big name titles such as
Honor of Kings, FIFA online, LoL, and Call of
Duty online (see figure 3).
 Honor of Kings: Honor of kings is
Figure 3: Top Grossing Chinese apps
Tencent’s most successful videogame
with over 220 million Monthly Active Source: https://tinyurl.com/ydg7cqt8
Users (MAUs). It is phone-based Multiplayer Online Battle Arena (MOBA) utilizing historical
figures as characters, the goal is to destroy the enemy nexus.43 Tencent also plans to release the
game rebranded as Arena of Valor in the international market.
 League of legends: Owned by proxy, league of legends is the biggest PC based MOBA in
China. China has over 110 million MAUs and 90% of the league of legends player base.
Services
 QQ Comics: Tencent is entering China’s $31 billion anime market with the acquisition of 300
Japanese anime titles.44 Tencent plans on placing some titles behind a paywall in order to
generate revenue.
 WeGame: WeGame is Tencent’s TGP rebrand. The service currently offers PC videogames to
its client base in a manner similar to other services such as Valve’s Steam. The new client is
designed to rival Steam in the international market.45
 WeChat: WeChat is known as Tencent’s “everything” app. The app, which hosts 938 million
MAUs, is central to Tencent’s connection strategy. This strategy calls for effectively monetizing
the two services by connecting users to other areas such as streaming music, movies, and video
games.46
 QQ Music: QQ Music is Tencent’s up and coming music streaming service. QQ music has
approximately 400 million MAUs and is currently in the process of merging with China Music
Corporation; a Tencent spin off company.47
 Tencent Video: Tencent’s streaming service offering both indigenous and international movies
for the domestic Chinese market. It currently has 20 million paid subscribers.48
 BCG Matrix Analysis:

QQ Comics
 Dogs: Pressure from Chinese state-media is transforming Tencent’s videogame portfolio. The
People’s Daily referred to Honor of Kings as “poison” and urged regulatory reform.49 In
response Tencent limited youth play to two hours per day by utilizing forced logout protocols.50
Chinese government action could potentially reduce game profitability in the Chinese mainland.
 Question Marks: Questions remain in Tencent’s portfolio. WeGames is a rebranding of TGP

designed to appeal to the Chinese consumer base while grabbing international users.51 Tencent is
largely untested in the international market, expansion against well-established brands like Steam
remains in doubt.
 Tencent video is also a question mark. The Chinese market is fragmented due to the absence of
Netflix, as a result Tencent video is battling iQiyi and other Chinese companies for control of the
market.52
 QQ comics is another question mark; Tencent is entering a new market with no dominant player.
As a result, China’s $31 billion-dollar market is up for grabs and Tencent’s acquisition is an
attempt to grab the market share.
 Stars: Tencent’s current star is QQ Music and the associated Chinese Music Corporation. In
2016 Tencent merged QQ music with the Chinese music corporation in 2016. Tencent
subsequently spun off the new division and created Tencent Music Corporation, a subsidiary
with a $10 billion IPO valuation.
 Cash Cows: WeChat is Tencents primary cash cow, the social media platform has nearly one
billion users. The app’s growth slowed from 29% growth to 18% in 2016-2017 time frame. As a
result, Tencent is now moving to milk its cash cow by connecting it with other services and
products. To that end Tencent is releasing a digital WeChat bank card, that will work similar to
Apple pay.53
Operations
Executive Summary Commented [FS8]: s
Tencent is a Chinese Tech company that consists of seven Commented [FS9R8]: ee comments above- this is an
intro. Where are the specifics?
different divisions. Each of them serve a different purpose and
field, such as business and product development. These divisions
provide an array of media entertainment, such as video games,
anime, and smartphone apps. It operates as both one of the biggest
investment companies and biggest internet companies in the
market. It uses services such as QQ and WeChat to help stream Commented [FS10]: what is “biggest”—give specifics. in
the world? Revenue? Market %. Can a CEO walk into a
and make available its anime and comic books. The company meeting with their the “biggest”?
currently exists in seven different divisions, all of which have Commented [FS11]: recommend listing the top three.
different duties and fields of business and operations, with the top
three being the CDG, the IEG, and the MIG. These divisions Commented [FS12]: See my comment about intros.
Figure 4: Tencent headquarters
have formed partnerships with companies such as Omnicom and
Source:
Ad master in order to improve their services and have more of a Commented [FS13]: Good!
http://www.nbbj.com/work/tencent/
presence in the global market.
Locations
Tencent has headquarters in Shengzhen, with the offices residing in Bejing, Shanghai, Chengdu,
and Guangzhou (see figure 4).54 The company also recently opened up an A.I. lab in Seattle.55 They also Commented [FS14]: Only one sentence? So there is just
one headquarters?
recently opened up an office in Signapore, extending their presence in South Asia.56
I noticed you did not have a map and I did some searching. I
realize this is Wikipedia, but it does show coverage. Suggest
Company Overview putting something like that in your paper to show their
operations…
Tencent’s goal is to make WeChat go international, yet it struggles due to cultural differences https://en.wikipedia.org/wiki/Tencent_Maps#cite_note-4
and competition with other companies such as Facebook They also recently gave WeChat its own search Image of the size of Tencent in comparison to competitors
engine, giving their services more control over the media.57 According to a report in The Sydney (this is a bit old, but more out there)….
https://tobyinus.wordpress.com/2014/12/12/you-as-a-
Morning Herald, Tencent's culture has been compared to that of a shark womb, meaning that divisions marketing-manager-the-facts-you-should-know-about-
internet-industry/
within the company often compete amongst each other.58 Tencent’s work environment has been said to
be “very good” by a former employee’s review on glassdoor.com (offer site here- this is one employee
also).59 The employees appear to be very supportive and helpful, the online community is also pleasant.
It seems to be emulating US tech companies in that it provides lots of free activities and various food
choices for the workers.
Staff
Employee Count
As of 2016, Tencent had 38,775 employees
(see figure 5).60
Discussion
Having originally divided into six groups
in 2012, Tencent is currently structured as 7
different divisions, which include:
 CDG: Corporate Development
Group: Works as the company's
new business incubator and
professional support platform.
This group is responsible
for opportunities for expansion in
online finance, online payments,
online advertisements, and other key
areas. In addition, the group provides
professional support on
strategy, investment, public relations,
and marketing for Tencent's
Figure 5: Number of Employees from 2008 to 2016
business.61
Source:
 IEG: Interactive Entertainment
https://www.statista.com/statistics/223719/number-of-
Group: Contributes to the operation tencent-group-employees/
and development of Tencent Interactive Entertainment businesses and oversees a variety of
quality interactive entertainment products, such as online games, online literature, comics, and
movies, which intend to turn the corporation into a leading brand in the entertainment industry
across the globe.62
 MIG: Mobile Internet Group: Focuses on mobile Internet services, providing excellent
security products and utilities, including Ying Yong Bao, QQ Browser, Tencent Mobile
Manager, and Tencent PC Manager. This division strives to advance the company's leading
position in the mobile Internet field. Ad master, a leading marketing data technology company,
has announced a strategic alliance with MIG on fighting against fraudulent traffic in mobile
marketing by establishing the “Anti Ad-Fraud Big Data Lab.”63 The lab aims to help identify
invalid traffic and fraudulent ads to create a safer environment for customers.
 OMG: Online Media Group: This group is responsible for operating and developing Tencent's
online media business, this division aims to create a high quality and diverse content ecosystem
through QQ.com, Tencent Video, Tencent News, and other core services. Recently made a
partnership with Omnicom, a leading global marketing and communications company.64 The two
groups intend to “explore and develop data models for eight different industries.”
 SNG: Social Network Group: This group oversees social platforms that are built around QQ
and Qzone and strives to provide quality instant messaging and social networking services. This
division develops innovative value-added services and promotes the cloud business to create
more value for end users and partners. The president of this division, Dowson Tong, has
proclaimed himself to be very bullish about A.I., and is a big proponent on making A.I. a
service.65 Recently Tencent opened an AI lab in Seattle, and has appointed a former Microsoft
engineer to oversee the operations.
 TEG: Technology and Engineering Group: This division provides the company's business
group with support in technology and operation, and a full suite of customers to users. It is also
responsible for managing research and development, and establishing and operating the IDC.66
 WXG: Weixin Group: This division is committed to the development
of Weixin/WeChat products, growing its open platform, payment service, and O2O services to
create greater value for our users and partners. It also holds responsibility for development and
operations for key products including QQ mail, Enterprise Weixin.67
Marketing Activities and Trends
Executive Summary:
Tencent mostly markets through conferences and trade shows (e.g. Electronic Entertainment Expo,
Tencent Pictures Conference, Global Mobile Internet Conference) to get their products and services
known at a global level. The app WeChat is Tencent’s biggest advertiser as it is one of the most used
apps in China, and has a variety of different services connected to it. Despite the limited online presence
and use of social media, Tencent still manages to grow by participation in various other mediums.
Discussion:
Attendance at Conferences and Trade Shows:

Tencent participates in the Electronic Entertainment Expo (E3). E3 is a premier trade event that shows
the years upcoming games and consoles, in the 2017 year there were 68,400 attendants.68 Tencent
participated in 2017 at E3 in the Entertainment Software Association which offers a range of services to
interactive entertainment software publishers.69
Since the establishing of Tencent

Pictures in 2015, an annual
conference is held to announce
progress of television series and
films.70 The conference invites many
celebrities and collaborates with other
Figure 6: Mr. Ren Yuxin, the COO of the Tencent Group and
entertainment groups Haina Pictures.
Chairman of Tencent Pictures speaking at the annual
At the annual conference, the conference
chairman of Tencent Pictures, Ren Source: https://tinyurl.com/y7kxftsc
Yuxin, announces the projects and
speaks about future investments (see figure 6). Ren Yuxin stated that Tencent will make more
systematic and long-term investments at this year’s past conference.71 Tencent Pictures will be working
with China Literature, a Chinese e book business, in the production of 11 works in 2017, along with
other companies such as Haina Pictures and China Literature group to work on the 43 movies and tv
show projects that were announced.72
Tencent participates in Global Mobile Internet Conference (GMIC). GIMC is a global platform that
connects innovators worldwide, since its first conference in 2009 GMIC has become a must-attend event
for companies, industry professionals and technology enthusiasts.73 In the 2017 year, Tencent will be a
top sponsor, exhibitor, strategic media partner, and have speakers from the tech industry for GMIC.74
Tencent has a booth at GMIC demonstrating technological advancements of the year (see figure 7).
Figure 7: Tencent at Global Mobile Internet Conference
Source: https://tinyurl.com/ycsjow8k
Advertising:
WeChat is Tencents app for
everything, dealing from instant
messaging to mobile banking.
WeChat is also Tencents big
advertiser. A game with red
envelopes is played between
colleagues and friends, sending
money back and forth as a game of
who can get to the red envelope
the fastest.75 Tencent hosts events
that use red envelopes as incentive
to use their app. In 2016, WeChat
held an event on New York’s
Times Square during Chinese Figure 8: Red Packet Growth
New Year handing out lucky Source: https://tinyurl.com/jr96pf2
money to users.76 This spiked
their number of red envelopes (see figure 8).
In addition, Tencent uses online advertising in their WeChat app. Within the last year Tencent has
utilized their advertising efforts to increase revenue. Tencent has been utilizing banner ads in their
WeChat app since 2014, and within the last year adding advertisements to other parts of the app. With
the continued increase in advertisements it is likely that ad revenue will increase more within the next
year.77
Online Presence:
Tencent has very little online presence. They have social media pages on Facebook, Twitter, and
Instagram, but do not use the platforms as marketing spaces. Each platform has very few followers and
little to none content. Tencent does use YouTube as a streaming site for Tencent Video with over 290
million views in the past year.78 This is their only social media site used, with almost 6 thousand
videos.79 Advertising Chair SY Lau uses Tencents main YouTube channel to post videos of him
speaking at conferences but this channel is vastly less used compared to Tencent video with only 18
videos, each not breaking the thousand-view mark.80
SY Lau is the Chair of advertising and the only person who markets on various platforms. He is the
speaker at some conferences that Tencent attends such as MIND Conference (see figure 9). Lau is also
the only chair of Tencent that is visible on social media such as Twitter and is the person who is
speaking in YouTube videos. He and his team have worked to get recognition of the industry since
Tencent has started media operations.
Figure 9: SY Lau speaking at Tencent MIND Conference 2015

Source: https://tinyurl.com/ybnmoyq4
Strategy
Executive Summary:
Tencent is currently pursuing monetization of its WeChat app while at the same time pursuing a policy
of aggressive M&As in a bid to diversify and expand in the international arena. In addition, Tencent is
developing their AI capabilities to keep the company’s products and services relevant moving forward.
Theseis strategiesy will help Tencent realize WeChat’s full potential while establishing itself as a
multinational corporation with a portfolio resistant to shocks in the Chinese tech market.
Discussion:
Diversification through M&As & Investments
Tencent is currently pursing both international expansion and diversification through M&As and
investment. Tencent acquired 5 companies over the last 2yrs with a total known valuation of over $10
billion. Companies acquired include: Sanook, China Music Corporation, Supercell, and Miniclip SA.81
Over the last year, Tencent invested in 50 companies including: Lilium Aviation, Tesla, Huodongxing
(see figure 10). These investments and acquisitions represent a concerted yet cautious effort to enter the
international market.
To
Figure 10: Tencent's investments since late august
Source: https://tinyurl.com/ydhurks8
minimize risk, Tencent utilizes a subsidiary-type approach when acquiring companies; companies
acquired by Tencent continue to operate as they did before while handing over operations in China. Riot
Games is a prime example; acquired in 2011, Riot did not make any major changes in either operations
or in its own video game.82 The biggest change was Tencent’s League of Legends mobile spin off
Honor of Kings.
Tencent is also diversifying its portfolio both domestically and internationally. Tencent’s investments
and acquisitions target a wide variety of industries where Tencent previously had no role; these
industries include transportation, banking, medicine, and music and movie streaming.83 The most recent
attempt at major diversification was Tencent’s acquisition of China Music Corporation; the deal
increases Tencent’s hold on China’s music streaming market from 15% to 56%.84
“Connection” strategy
Another of Tencent’s core strategies

involves connecting WeChat to the
company’s other business ventures
including Tencent Games, Tencent
Video, China Music Corporation, etc.
(see figure 11). The connection strategy
is an attempt to properly monetize the
app’s 963 million MAUs.85
Current efforts to achieve that end

include aggressive in-app advertising86,
cross platform communication with
popular Tencent Games87, and the
integration of WePay into the app.
Figure 11: Screenshot of CSR report detailing connection

Investing in AI capabilities strategy
Tencent is also bolstering AI
Source: https://tinyurl.com/yct58tza
capabilities in a move to shore up future
prospects for the company and its many investments. Tencent is building an AI team and currently has
around 30 team members in its Chinese AI lab, most of whom have PhDs.88 In addition Tencent
poached Baidu’s Zhang Tong while also hiring a former Microsoft AI scientist Yu Dong.89 In addition,
the company also opened an AI lab in Seattle. The lab is expected to house top US talent under the
newly hired Yu Dong.90
These announcements indicate a newfound commitment to AI from Tencent; analysts previously

described Tencent as timid when compared to other tech giants such as Alibaba, Facebook, and
google.91 The drive would benefit many of Tencent’s products and services including WeChat, Tencent
Games, etc. It would also fit into China’s recent pledge to become a world leader in the AI field.92
Previous announcements by the Chinese government in areas deemed of strategic importance led to new
regulations and grants.
Financials
Executive Summary:
Tencent stock has increased over the last 5 years (See Figure 12).93 Since 2012, their stock has improved
with only minor setbacks, with the stock price recently hitting $25.99 price point in a recent stock
trade.94In the past Year, Tencent’s stock was 32.00%. They recently posted $21.9 billion in annual Commented [FS15]: Dollar or yuan?
95
revenue, which has been its highest amount of growth since 2012. This is due to the success of games
such as Honor of Kings and their social service WeChat. Plus, the multiple purchases in stock of other
companies has extended the company’s influence in finances, leading the holding company’s revenue to
increase exponentially.
Discussion:
Overall Performance:
Tencent has been on a steady
rise in stock, seeing a growth
of 140% since 2014.96 The
company’s revenue, which has
been on the rise since the year
2007, increased 59 percent to
56.6 billion yuan.97 As the
most valuable firm in Asia,
Figure 12: Tencent's stock Increase from 2012 to 2017
that has been riding on the
success of its game Honor of Source: https://tinyurl.com/y7p8lnsv
Kings, Tencent has stated that its profit has come in in at 18.23 billion yuan ($2.72 billion) in the second
quarter, up 70% from a year ago, making it the biggest rise in 7 years. The popularity of Honor of Kings
itself has helped the company’s revenue climb 54 percent to 14.8 billion yuan, which has allowed it to
surpass Pc Games for the first time. The revenue gained from Online advertising rose 55 percent to
10.15 billion yuan, which has always been helped by a 61 percent rise in the revenue gained from
“social and others advertising”, and is mainly from WeChat advertisements. Recently, Tencent entered
traditional finance industry by investing in CICC International Capital Corp, and it may help in their
bank managements.98 Despite mainly having getting finance from gaming, Tencent is seeking
investments in finance, to diversify their place in different businesses and to extend its revenue.
Purchases and Partnerships:
Tencent recently purchased 5% of Tesla for
$1.7 billion to establish itself as one of Tesla’s
shareholders.99 It is unclear whether this
purchase has any kind of strategic purpose, but
it’s clear that influence form Tencent could
help with Tesla’s presence in China, with sales
in the country accounting for Tesla’s $7 billion Figure 13: Tencent Revenue increase
revenue in 2016. Another investment the
Source: https://valueinvestasia.com/top-3-things-to-
company made was $350 million in the know-about-tencent-holdings-ltd/
Chinese photo/streaming app Kuiashou.100
This app is aiming to go public the US, giving another one of Tencent’s investments revenue from the
States. One of their most important investment s has been in videogames, as the extension into game
platforms has increased their revenue drastically over the last few years.101 The revenue itself has mainly
come in Social Networks and Online Games, allowing the company to go through an annual growth rate
of 73% to 76%. The revenues from their online service has consistently increased for the past 5 years,
making it the company’s most asset and establishing its identity as a Tech company above all else
(figure 13). The success of the mobile games has resulted in a 70 percent increase of profit in Q2
2017.102 The mobile gaming market represents a large chunk of Tencent’s quarterly revenue of 56.6
billion RMB ($8.49 billion) for the quarter, being 59 percent of it.
Stock Performance:
As the stock has been on the rise for the past
five years, the common consensus among 41
polled business investors is that buying stock
in Tencent is the right thing to do (See Figure
14). 103 41 analysts have also made
predictions that for the next twelve months
Tencent with a high estimate of 55.04 and a
Figure 14 Past monthly stock recommendations for
low estimate of 35.16. The stock performance Tencent
of Tencent has been improving so much and Source:
even with the possible setbacks of the future http://money.cnn.com/quote/forecast/forecast.html?sym
b=TCEHY
the stock will still be something that people
will seek to buy.
Current Events
Executive Summary:
Tencent is receiving both positive and negative press especially over the past 5 years. Pony ma, the
current CEO, is aiming to make Tencent competitive in the international market while at the same time
reducing risk. Tencent’s acquisitions and investments from 2010 to 2015 reflect this approach. The
Bluehole diversifies Tencent’s portfolio with minimal risk due to a hands-off approach. At the same
time, WeChat’s expansion into Africa is a relatively safe bet; Africa already has substantial Chinese
influence through the government. Tencent is currently receiving negative press via the Communist
government; China daily’s hit piece on Honor of Kings cost the company over $17 billion.
Discussion:
Tencent buys 5% of Bluehole
Tencent continued to expand internationally with revelations that it bought nearly 5% of game developer
Bluehole.104 Bluehole is relatively new to the gaming scene but already has a smash hit in Player
Battlegrounds Unknown (PUBG). PUBG is a multiplayer survival FPS in which players aim to be the
last man standing by the end of the match. Recent analysis indicates nearly 42% of the player base is
Chinese, something that has not gone unnoticed by Tencent. The game had nearly 2 million players
within the last 24hrs and is still in early access.105
People’s daily: Honor of Kings “Poison”

Tencent shares slid nearly $17 billon after the People’s daily called Honor of Kings “Poison”.106 The
semi-official statement came in the aftermath of two widely publicized cases in which a boy jumped off
a building and another suffered cerebral infarction. The two cases are linked indirectly to Honor of
Kings, the infarction occurred after 40hrs of gameplay while the attempted suicide came after the boy
had been scolded for too much gameplay.
Tencent Profits:
Tencent recently recorded $2.7B in profits from their mobile games.107 They also recently had a 47
percent rise in quarterly profit.108 They also received $1.5b in profit in 2016 thanks to the WeChat
messaging App and mobile Games.109 In 2015 Tencent made off with 3.1B during Q1, and made $1.1B
on video games 2014 had profit of $4B, up 53% on year.110 Had a revenue of $2.16b during Q1 in 2013.
ABOUT TENCENT
Founded in 1998 by Ma Huateng and Zhang
Zhidong. Tencent became a public company in
2004 by being listed on the Hong Kong Stock
Exchange. Tencent's mission is to enhance the
quality of human life through Internet services.
IPO occurred in 2004 and the valuation is 11
billion dollars.
HEADQUARTERS OPERATIONS
-Tencent’s Shenzhen -38,775 MARKETING
Headquarters: employees -Tencent relies on WeChat to advertise for their
Kejizhongyi Avenue, products.
Hi-tech Park, Nanshan - Offices residing -Almost no social media presence other than the
District, Shenzhen in: Beijing, chair of advertising SY Lau, but attends
-Postal Code: 518057 Shanghai, technology conferences (e.g. Electronic
-Phone: 0755- Chengdu, Entertainment Expo, Global Mobile Internet
86013388 and Guangzhou Conference, Tencent Pictures Conference).
PRODUCTS & SERVICES

-Stars: QQ Music
KEY FINANCIALS
-Cash Cows: WeChat, app used for mainly messaging and more
-Revenue: 56.61 billion recently electronic banking
-Net Incomes: -Dogs: Honor of Kings, Tencents most successful video game
2013- 15.56 billion yuan -Question Marks: Tencent Video, streaming service; QQ Comics,
2014- 23.89 billion yuan anime service; WeGame, service that offers PC video games
2015- 29.11 billion yuan
2016- 41.45 billion yuan
-Stock Price: 361.8 billion
dollars PARTNERSHIPS
-NFL: Live and on demand games
-Nintendo: Honor of Kings will be published on the Nintendo
Switch
-Apple: WePay is available on Apple’s platform
-Alibaba
PRIMARY COMPETITORS ACQUISITIONS SIGNIFICANT
-Baidu -Sanook – 12/22/16, HK EVENTS
81,700,000
-Supercell – 6/21/16, HK Tencent founded, 1998
INVESTMENTS 8,600,000,000
-Wonder Workshop - -Riot Games – 2/5/15,
$41,000,000 $400,000,000 QQ Messenger released,
-Kindred.ai – $35,400,000 -Cloudary – 1/27/15, 1999
-Meituan-Dianping - $100,000,000
$4,000,000,000 -China Music Corp – 7/14/16,
-Wattpad - $50,000,000 $2,700,000,000
KEY EXECUTIVES
WeChat released 2011
Daniel Xu: Tencent buys Riot

Chief Information Games, 2015
Ma Huateng: Officer
Martin Lau:
Founder CEO & With Tencent: 19 years
President
Executive Director Former employer;
With Tencent: 11 years
Shenzhen Data
Former employer;
Telecommunications
Sogou Inc Tencent buys China
Bureau
Music Corp, 2016
Mark Ren: David Wallerstein:
Chief Operating Officer Chief Exploration Officer
With Tencent: With Tencent: Chinese government
7 years 16 years calls games poison,
Former Former drop in shares, 2017
employer; employer;
Huawei NASPERS
CURRENT EVENTS Technologies STRATEGIES
-Tencent is diversifying through M&As and
-Nov 16, 2016 investments and is looking to expand into
$1.5B profit thanks to its WeChat the international market specifically India.
-Jul 4, 2017: -Utilizing connection strategy through
Play time restricted for mobile game Honor of Kings WeChat to advertise other products and
-July 5, 2017: services.
Shares slid $17 billion after Honor of Kings called
poison -Investment into AI for China to be a leader
-Sep 28, 2017: in AI technology and benefit Tencents other
Tencent bought 5% of Bluehole products and services.
-Aug 16, 2017:
Recorded 2.7 billion profits from mobile games
Porters Four Corners
DRIVERS CURRENT STRATEGIES

 Mission statement: to do good  Mergers and acquisitions to
through technology, meaning diversify / expand internationally;
they want to improve the world e.g. medical technology, aviation,
through the development of international media, auto
technology  Connection strategy for WeChat
 Maintain liquidity for to better monetize
impulsive yet safe investments  Movement into AI to keep
 Communist party AI goals (e.g. services and products competitive
become leader in AI by 2030) as AI becomes widely used
FUTURE STRATEGY
 Heavy investment in AI while acquiring
companies that can benefit China while
also benefiting Tencent
 Diversification into other industries (e.g.
auto, foreign media, etc.) to mitigate the
tech bubble and improve profit profile
 Integrate AI into company WeChat app
ASSUMPTIONS CAPABILITIES
 Social media will remain strong  Valued at 300 billion dollars
 Tech bubble to remain stable in the  Nearly 900 million active users
short term but diversifying is on WeChat
necessary  30 strong team working on AI,
 AI vital to future success most have PhD
 Western perspective needed to  Lacking significant presence
expand in the international market outside of China
Future Strategy:
Heavy AI Investment
It is expected that Tencent will increase investment and devote more resources to AI. The
Communist Party’s AI goals will likely provide both incentive and monetary compensation
towards that end. Tencent will likely follow that up with significant increases to its R&D budget
(currently unknown) driven by increased profits from dominant products and services. Based on
Tencents investment within the last two years in tech companies researching AI it is likely they
will continue to increase their investments.111
Continued Diversification
Tencent is also likely to continue its path of diversification. Market analysts worried that the
market currently exists in a bubble state.112 Some of these analysts believe the tech industry is to
blame for IPOs such as Facebook being nearly inconceivable even 5 years ago.113 Current
knowledge suggests diversification will be needed. Luckily, Tencent has reserves, financial will,
and political will to pursue such a strategy. Tencent has already begun diversifying their
portfolio by making the addition of mobile banking to their popular messaging app, WeChat.114
Integration of AI into services

Tencent will likely start rolling out incremental AI upgrades into its services to stay competitive
with market rivals. Integration of AI into its current services will allow Tencent to analyze its
userbase better than competitors and keep ahead of market trends. Tencent heavily invests in
companies with AI technology (e.g. Yunji Technology, UBTECH Robotics, and Octopus
software).115
Drivers:
Mission statement: to do good through technology
Tencent’s mission is to enhance the quality of human life through internet services. They achieve
this by providing social platforms and digital content services under their “Connection”
strategy.116 Tencent is currently fulfilling their mission by connecting people through WeChat
and their many games. Tencent is also investing in medical technology, transportation, and AI
with the eventual goal of bringing the tech back to China.117
Large amount of available funds for impulsive yet safe investments

Tencent’s stock price increased exponentially over the last 5 years due to sound strategy and
good management. This has allowed them to amass the necessary funds to make impulsive yet
safe investments.118 These investments are not paying off yet but have the potential to raise
revenue across the board. Tencent's video games including LoL and Honor of Kings are also
instrumental in Tencent’s rise and bring in huge amounts of cash owing to their enormous player
bases.
Communist party AI goals/Tech Macroenvironment

Tencent is now bolstering AI capabilities. Factors driving Tencent in this arena include the
Communist Party’s AI goals and the current macro-environment in the tech industry.119 Experts
in the tech industry expect AI to be of vital importance.120 If current research is correct AI will
help Tencent master marketing behind many of its services and products especially WeChat. The
Communist Party also holds huge sway in determining the direction of native businesses. The
party’s goal of becoming an AI leader by 2030 can be considered a veiled threat as well as a
promise.
Current Strategies:
Diversifying
Tencent is focusing on diversifying its portfolio. Tencent’s investments over the past year signal
a willingness to diversify out of the tech industry and into industries including medicine,
transportation, and media. Most of these investments focus on the future of said industries.
Lilium Aviation is a prime example, this startup is aiming to produce the first all-electric
VTOL.121 These investments are likely an attempt to soften a tech bubble burst and/or an attempt
to become a first mover in these fields.
Connection Strategy
Tencent is connecting “WeChat” in order to increase their profit margins. The strategy focuses
on connecting WeChat to their other platforms.122 Success in this area would see WeChat’s 963
million users flocking to the company’s nascent services including WeGame, China Music
Corporation, and Tencent Video.
International Investment
Tencent is investing in the international market specifically in India.123 Tencent to date has
acquired five foreign companies including Sanook, Riot Games, and Zam.124 These companies
run the gamut of categories including IT, Video Games, and media companies.
Assumptions:
Social media will remain strong
IPOs for companies such as Facebook, Snapchat, and Twitter add growing weight to the idea that
social media is here to stay.125 Tencent sees WeChat as having huge potential in this area, the
successful monetization of the platform’s users would allow Tencent to compete should foreign
social media companies enter the Chinese market.
Tech bubble won’t burst

Tencent’s current strategy assumes that the tech bubble doesn’t exist or will remain stable. The
meteoric rise of Facebook, Amazon, Netflix, and Google (FANG) stocks concerns many
financial analysts and is drawing comparisons to the dot-com bust of the late 90s.126 Should the
bubble burst Tencent’s “Connection Strategy”, which entails connecting WeChat to the
company’s nascent products and services, might not mean much.
AI vital to future success

One current assumption regards AI as being crucial to future success this assumption is given
even greater weight in business. Randy Grady, president at CloudCraze, puts it succinctly “AI
puts endless amounts of actionable data into the hands of businesses”.127 Companies such as
Tencent would benefit from that control given the large amount data generated from products
and services like WeChat.
Western perspective needed to expand in international market

Tencent has put this assumption into practice. Tencent filled key leadership positions pursuant to
their goal of becoming a multi-national corporation. Both the company’s President and Chief
Strategy Officer come from Goldman Sachs.128 Problems could arise if the Communist Party
sees the company as being “too western”.
Capabilities:
Valued at $300 billion
Tencent recently has passed Wells Fargo as the world’s tenth most valuable public company. Its
stock has climbed 43% in the last year with more than 20% in 2017 alone.129 They are now
valued at 300 billion dollars, most of which was accumulated through a combination of M&As
and important services such as WeChat.
WeChat
WeChat alone has nearly 963 million users.130 These users have the potential to be a crucial
capability; the successful monetization and connection of these consumers will allow Tencent
rise to the top in many of China’s emerging markets. Right now, on-demand video, music
streaming, and gaming markets of China are largely fragmented.131 As such, Tencent Video,
China Music Corporation, and WeGame will likely need WeChat users to achieve profitability
and dominance in the Chinese market.
AI Capabilities
Tencent is a relative latecomer to the AI field when compared to other Chinese tech giants like
Baidu. However, over the past year, the company started to dedicate resources to AI, much of it
public in nature. Tencent’s AI team currently has around 30 members, most of whom have PhDs.
In addition, they have also opened a lab in Seattle, along with hiring a former Microsoft AI
scientist Yu Dong.132 The lab is expected to house top US talent under Mr. Dong.
Lacking Significant Progress Outside China

Tencent is currently working to expand into the international market, specifically in India.133
Tencent launched QQ Comics, a service that will expand them into the comics and anime
industry and will likely expand in the Japanese and American market.134 Since Tencent is just
starting to expand into the international market they will likely not make significant progress for
at least a year.
Tencent Financial Ratio Analysis

Executive Summary:
Tencent’s financials are currently varying due to their M&A strategy. The mixed bag correlates
strongly with Tencent’s M&A strategy. Tencent’s liquidity ratios increased over the last 3 years
due to an increase in assets and a drop in debt. loan payments, and an assets/liability drop during
the 2015-2016 timeframe. The current ratio is slightly below the 2-1 recommended ratio;
however, it has increased over the 3-year timeframe. Tencent’s acid test is very strong and is 1.5
times the recommended ratio. Tencent’s solvency and leverage ratios went up over the 3-year
timeframe in keeping with their aggressive strategy; in Tencent’s case their M&As correlated
with an increase in total assets by ¥224,723billion. Efficiency and activity ratios both fell over
the 3-year timeframe as they acquired five companies. Some of the merger investments have not
paid off as of yet and Tencent is now responsible for the “acquired” accounts receivables.
Tencent’s profitability also went down by 6% due to huge asset increases associated with their
M&A strategy. However, Tencent’s net profits are increasing from ¥23,888billion to
¥41,447billion but cannot keep pace with the strategy. Finally, Capital Market and Shareholder’s
returns trended up thanks to increasing profits (¥23,888billion to ¥41,447billion) and market
confidence in their aggressive strategy.
Discussion:
Desired
Financial Ratios Years Trends
Results
2014 2015 2016
Liquidity
Current Ratio Higher 1.50 1.20 1.47 ↔
Acid-test Ratio Higher .85 1.20 1.47 ↑
Leverage/Solvency
Debt to Equity Lower 43% 53.50% 58.70% ↑
Debt to Assets Lower 21% 21% 27.65% ↑
Activity/Efficiency
Asset Turnover Ratio Higher 0.56 0.43 0.43 ↔
Accounts Receivable Turnover Higher 20.92 17.66 17.65 ↔
Average Inventory Investment Period Lower NA NA NA
Profitability
Return on Assets Higher 17.16% 12.17% 11.79% ↓
Return on Equity Higher 33.98% 28.51% 26.88% ↓
Profit Margin Ratio Higher 30.26% 28.29% 27.27% ↓
Capital Market/Shareholders' Return
Earnings per Share (EPS) Higher 2.55 3.06 4.33 ↑
60
P/E Ratio Higher 38.12 41.72 ↑
(2017)
Above: Table depicting the financial ratios and their overall trends from 2014 – 2016. Green represents
positive trends. Yellow represents neutral trends. Red represents negative trends.
Liquidity
Current Ratio
The current ratio measures a
company’s current ability to
pay its debts by comparing
assets to liabilities. A ratio
over 1:1 indicates that the
company is able to cover
financial obligations that
could arise, with 2:1 being
ideal.
Tencent’s current ratios
remained stable during 2014-
2016 timeframe. Tencent’s ratio remained stable due to an increase in both assets by
¥73,833million and liabilities by ¥ 51,162million during that same period, the large drop
from 2014-2015 occurred due to a doubling of current assets and current liabilities. In 2016,
Tencent’s current ratio recovered after their current liabilities decreased more than their
assets, while not at the 2:1 ratio it represents a positive trend.
Acid-test Ratio
The acid-test ratio measures a

company’s ability to pay off short
term debt by comparing only
liquid assets to liabilities and is
the best measure of liquidity.
Unlike the current ratio, this
measure excludes inventory and
emphasizes a company’s most
liquid assets. A higher ratio
indicates greater liquidity, as well
as ability to meet financial
obligations.
During the three-year timeframe
Tencent’s acid test ratio increased. Tencent’s ratio increased due to an increase in cash from
¥ 42,713million to ¥ 71,902million throughout the timeframe. The acid test for 2016 was
extremely positive at a 1.5:1.
Implications
The recommended ratio for financial stability is a 1:1 ratio. Tencent’s financial stability has
increased over the timeframe thanks to increasing cash and keeping steady liabilities. Both of
these categories have nearly doubled over the three-year frame as a result of Tencent’s
aggressive M&A strategy, any decrease should be viewed as having a minimal drop with a
limited impact. Liquidity was also bolstered by increasing sales resulting in an increase of cash
in both the videogame sector and through increasing advertising revenue from WeChat.135
Leverage and Solvency

Debt to Equity Ratio
The debt to equity ratio
measures a company’s
financial leverage. It is funds
provided by creditors verses
the funds provided by owners.
The desired state is when
equity is higher than debt.
When the ratio is lower, the
company has higher debt and
smaller leverage.
The debt to equity ratio of
Tencent increased over the 3-
year timeframe. From 2014-
2016 it increased from 15.7%
due to a significant increase in
debt; from 2015-2016 borrowing tripled while notes payable remained steady. Debt increased
from ¥35,584million to ¥109,497milion. While alarming the amount of debt is well within
manageable levels and appears to directly correlate with their aggressive expansio
Debt to Assets Ratio

The debt to assets ratio is a
total amount of debt relative to
assets. Higher ratio means
higher leverage and greater
financial risk.
Debt to assets also rose over
the three-year timeframe.
Tencent’s debt doubled each
year during from 2014-2016
from ¥38,584 to ¥109,497. The
ratio remains stable however
and represents an aggressive
strategy as opposed to falling profits.
Implications
Tencent’s ratios are increasing, in some cases substantially. Debt to equity increased nearly
16% in keeping with massive borrowing increases. Debt to assets also increased; likely due
to the aforementioned factor. Tencent’s current strategy revolves around connecting WeChat,
diversification, and heavy international expansion; these strategies require enormous amounts
of capital and would as a result increase these ratios.136
Activity and Efficiency

Asset Turnover Ratio
The asset turnover ratio is the
amount of sales or revenues
generated per dollar of asset. The
desired state is when the ratio is
higher meaning that the company
generates more revenues per
dollar of assets.
Tencent’s current ratios over the
last 3 years decreased. From 2014
to 2016, Tencent experienced
decreases each year thanks to a huge increase in total assets from ¥171,166million to
¥395,899million. Company sales are still increasing from ¥78,932million in 2014 to
¥151,938million in 2016 however; they are not keeping pace. The ratio in 2015 reflects the
current cash flow, though it still is well below the desired 2:1 ratio.
Accounts Receivable Turnover Ratio

The accounts receivable
turnover ratio is used to show
how effective a company is at
extending credit and collecting
debt. A higher ratio is better
because it indicates that the
business is efficient at collecting
credit and converting to sales.
The Accounts receivable
turnover ratio for Tencent
dropped over the 2014-2016
timeframe. From 2015 to 2016
both accounts receivable and
revenue increased. Accounts receivable increased from ¥4,588million to ¥10,152million.
Sales increased from ¥78,932million to ¥151,938million. The ratio lowered as Tencent added
the accounts receivable of acquired companies, which was much higher than incoming
revenue.
Implications
Tencent’s turnover ratio has been decreasing slightly. This ratio reflects the M&A strategy as
they acquire accounts from other companies. In addition, asset totals also rose as other
companies are added to the book.137138 In 2015 to 2017 acquiring five companies in three
years.
Profitability
Return on Assets Ratio
The Return on Assets Ratio

measures how well a business is
using its assets to produce more
income. High ratios are desired as
they mean the business is receiving
a greater return on its assets.
Tencent’s return on assets

decreased over the 2014-2016
timeframe. Tencent’s assets
increased from 2014 to 2016 due to
numerous M&As; Total Assets
increased from ¥171,166million to ¥395,899million. Again, Tencent’s net profits are
increasing yearly, 2014-2015 increased ¥5,220million and 2015-2016 increased

¥12,339million, but are unable to match Tencent’s doubling of assets.
Return on Equity Ratio
The Return on Equity Ratio is used

to determine what return on
investment the company is
providing to shareholders. Higher
ratios are desired as they mean
shareholders receive a greater
return.
Tencent has a stronger ratio proving

shareholders receive a great return
on investment. From 2014 to 2015, the ratio fell by 5.49% in 2015 with a smaller drop by
1.63% in 2016. Equity increased from ¥82,124million to ¥186,247million and net income
increased from ¥23,888million to ¥41,447million. Tencent’s declining return on investments
is likely due to an influx of capital; Tencent’s stock is a popular choice for those looking to
invest in the bull market.
Profit Margin Ratio
The Profit Margin Ratio measures

how much money a company
makes per a dollar of sales which
depicts the efficiency of the
company. Higher ratios mean
costs are lower while a declining
ratio means costs may be going
up.
Tencent has a strong profit margin

that’s had a small decline between
2014 and 2016. Within this range,
the ratio decreased by 2.99%. Cost
of revenue increased steadily from 2014-2016 from ¥78,932 to ¥151,938 and ate into gross
profit. Cost of revenue could be increasing due to a variety of factors including, an overall
shift in the Chinese market, new Chinese legislation, or could represent failure to streamline
new acquisitions.
Implications
Tencent’s decreasing profitability ratios are concerning, however profits for the company are
up overall by ¥17,559billion and rose from 2014-2016. This trend likely represents Tencent’s
aggressive strategy in acquiring and investing in a large amount of companies. New
acquisitions have not had time to pay off despite adding to overall assets. While at the same
time, their aggressive M&A strategy prompted many to invest in Tencent which decreased
return on equity. Profit margin decreased as the costs associated with their services rose, this
could either be due to diversification of M&As or due to Chinese legislation. Decreasing
would seem to suggest Tencent could easy up on its heavy M&A strategy, however incentive
to do so is lacking thanks to increasing profits and good stock numbers.139140
Capital Market and Shareholders’ Return

Earnings Per Share
The Earnings Per Share Ratio

shows how much net income
is earned per share of stock.
It is the single most popular
ratio used by companies. A
rising number shows that the
company using its investments
more efficiently.
The past three years,

Tencent’s EPS increased.
Their earnings per share rose from 2.55 in 2014 to 4.33 in 2016. This trend comes as
Tencent’s profits continue to rise on a yearly basis. Tencent’s net profits have been
increasing from ¥23,888billion to ¥41,447billion in the last three years.
Price/Earnings (P/E) Ratio
The Price to Earnings Ratio

indicates the market price of a
dollar of earnings. It compares the
market value per share at the given
point in time to the earnings per
share. A high ratio means high
projected earnings which is
desirable.
The P/E has been relatively steady

in the past three years. Tencent’s
P/E ratio rose from 38.12 in 2014
to 41.72 in the year 2015. Near the end of 2017 Tencent’s P/E ratio stood at 60. The P/E ratio
increased due to a steady increase in profit and an aggressive strategy. At the end of 2014
their stock price was 112, increasing to 152 at the end of 2015, and at the end of 2016
increasing to 188. This is likely due to Tencents M&As of the past three years.
Implications
Tencent’s capital market and shareholders return is currently strong. Tencent is pursuing an
aggressive M&A strategy and will likely increase their earnings per share and P/E ratio. In
the past three years their P/E and earnings per share have increased with a 1.784 increase in
EPS a volatile P/E ratio. The P/E ratio indicates their earnings in the stock market is strong,
the increase in their ratio is likely a result of their aggressive behavior in the past three years.
Addendum: Tencent’s P/E ratio is quite volatile but when taken from today’s context shows
an overall rise. Investors are easily spooked; before 2017’s 60 P/E ratio Tencent experienced
a huge drop when the Communist party labeled its top performing game “Poison”. Expect
Tencent’s P/E ratio to increase overall despite significant shocks.141142
Macro-Environmental Analysis
Key Trends and Implications
TRENDS IMPLICATIONS
Advertising on social media platforms Social media ads needed to maintain

will increase exponentially. player base
Social
Traditional forms of media are Partnerships with non-traditional forms

becoming less important. of media needed moving forward.
Emphasis on machine learning will Blizzard’s game AI will likely need to

likely increase within multiple incorporate machine learning to keep
Technology
industries.
pace within the industry.
Cyberspace will become the world’s
Upgraded security capabilities will be
most important battlespace.
necessary to sustain operations and keep
proprietary knowledge safe
Companies are increasingly likely to Blizzard needs to improve its large

go eco-friendly as attitudes towards carbon footprint moving forward.
Ecological
the environment change.
Renewable and eco-friendly resources

are becoming cheaper and easier to
use.
Baby boomers are not retiring. Blizzard will need to cut game costs as
millennial budgets tighten.
Economic
Increasing demand for tech oriented

labor. Video game companies such as Blizzard
will need to compete more fiercely for
tech labor.
Trade status quo holding strong
Blizzard will be able to continue
despite rise of nationalism and Trump.
pursuing foreign investment.
Political
Usage of non-traditional media as a

means of political dissent is increasing Blizzard will need to either stay neutral
or pursue an activist approach.
Increasing demand for a technologically skilled labor force will leave Blizzard particularly
vulnerable. This increase both exacerbates the tech skill gap and forces companies to be ultra-
competitive in recruitment efforts. The lack of skilled workers will likely hinder Blizzard’s
ability to battle cyber-attacks and create industry-leading AI. In addition, the tightening labor
market could affect Blizzard’s consumer base moving forward and force the company to keep
video game costs down. Aggressive recruiting is Blizzard’s best bet moving forward; success
there will lessen the impact of implications in all trend sectors, especially tech.
Social
Social media advertising will become an important source of revenue as millennials
continue to enter the workforce.
 Click rates for social media ads are reaping huge benefits in real-time. Facebook’s ad
revenue doubled in only two years; from $10 billion in 2014 to $25 billion in 2016.143 In
addition, Forbes reports that social media ads cost less while clicks are better targeted.144
 According to Variety, a well-known entertainment magazine, YouTube celebrities garner
more brand recognition among millennials, increasing the chances that the ad will target
the right audience.145
 Social media usage surged immensely within the last decade. In 2005 only 17% of adults
in the United States used any form of social media.146 In addition, average weekly social
media usage for adults amounted to nearly 25% of total media use.147
Interest in traditional media will decrease as millennials come of age.

 According to Forbes, Traditional forms of advertising fail to garner attention like new
media when targeting millennials.148 One study, by Omnicom Media Group, reported that
nearly 47% of adults ages 22-45 don’t watch traditional TV.149
 According to USA Today, millennials are less likely to watch cable when compared with
previous generations. Services such as Netflix, PSN, and Hulu are supplanting cable with
a wide variety of on-demand options that satisfy the millennial consumer.150
 According to Forbes, Millennials are more likely to use social media for news and
consume news in ways contrary to previous generations.151 In addition, news sources
have flocked to Twitter, Facebook, and other social media sites to accommodate
millennials including, CNN, FOX, and CBS.152,153,154
Implications
Blizzard’s consumer base
consists of tech-savvy gamers
known for spending a large
portion of their time watching
top streamers YouTubers, etc.
Continued mastery of social
media advertising will help
Blizzard maintain its player
base and attract new
customers (see figure 15).
Luckily, Blizzard is a veteran in
this arena. Blizzard is well-
known for its cinematic trailers on Figure 15: Social Media Ads in 2016
YouTube, its most recent cinematic trailer Source: https://tinyurl.com/y9qnd95z
for World of Warcraft has nearly 8 million
views and draw in veterans and new players alike.155
In addition, prioritizing partnerships with non-traditional media sources will be necessary

moving forward as Millennials are less likely to use traditional media across all spectrums.
Blizzard is already taking steps to secure partnerships and secured streaming deals with both
Facebook and Twitch. Both of which contain valuable target audiences already accustomed to
online gaming.156,157,
Technology
Emphasis on machine learning, mainly deep learning, is likely to increase within multiple
industries.
 The race to create the first fully autonomous vehicle is heating up in 2017. Companies
around the world are racing to become first movers in the industry, including Mercedes,
Tesla, and Baidu.158 In addition, Deep learning is vital in autonomous vehicles.

According to Nvdia and the Financial Times, deep learning code determines autonomous
vehicle decisions in nearly 100% of autonomous vehicles.159,160
 According to Bob Stasio, a cyber-intelligence expert, Machine learning could be vital in
helping slow the tide of cyberattacks and cybercrime arming security teams with an ever-
present employee. Sufficiently advanced algorithms running in the background can do so
through 24/7 data analysis, detection, and prevention. 161,162
 In 2017 Google, Bing, Microsoft, and Alibaba published papers focused on the potential
of deep learning and click rates.163 Bing’s study found that a mere 0.1% increase in
accuracy, something easily attainable with effective deep learning, would amount to
millions of dollars in additional earnings.
Cyberspace is becoming an increasingly

important battlespace as the world trends
towards unconventional warfare
 Operation Iraqi freedom, conducted
in 2003, is the most recent
conventional war fought by two
major powers.164 In addition,
Harvard professor Steven Pinker
notes in Better Angels of our Nature
that war appears headed for the
dustbin of history due to a Figure 16: Cyberattacks against federal agencies
combination of factors including since 2006
Source: https://tinyurl.com/jk9h5xl
international law, new societal
norms, and a decrease in fervent nationalism165
 According to the US government, Cyber-attacks against the US government are up
1,300% since 2006 (see figure 16). 166
 Traditional security measures have proved ineffective against ransomware in 2017.167
For example, security teams do not have the manpower to analyze and solve for
hundreds cyber-attacks.
Implications
Blizzard is a company known for engaging video games including Overwatch, Heroes of the
Storm, and World of Warcraft. These video games feature state of the art AI and gameplay vital
to retaining a player base. Increasing interest in deep learning means Blizzard will likely need to
develop new AI that keeps the company relevant moving forward. Dynamic Pixels demonstrated
the feasibility of a game that learns while you play with its upcoming release Hello Neighbor.
The survival-horror game’s AI analyzes player’s movements and actions in order to prevent the
player from winning.168 This development has huge implications for Blizzard moving forward,
chiefly regarding bots, companies with the best bots will dominate the market moving forward.
Additionally, an overall rise in cyber-attacks and cyber-crime means Blizzard will need to
invest in its security apparatus to protect proprietary information and sustain operations.
Like many other tech companies, Blizzard is particularly vulnerable to cyber intrusions targeting
proprietary code, future content, and server control. In 2011, acting alone, Lulzsec took down
popular games including League of Legends, Minecraft, and Eve online through DDOS.169
Ecological
Companies are increasingly likely to go
eco-friendly as attitudes towards the
environment change.
 A report from The Guardian stated
that 55% of people from 60 countries
were willing to pay for goods that are
more expensive if they come from
environmentally friendly
companies.170 In addition, within the
US millennial consumers are
prioritizing sustainability; 77% would
pay more, according to a Nielsen
study.171
Figure 17: Price of solar panels 1997-2013
Source: https://tinyurl.com/p7po5v3
 Apple is working towards a “closed loop supply chain, where their products only contain
recycled resources.172 In addition, Greenpeace recently praised Apple for getting 14
suppliers to go 100% renewable in the near-term.173
 Microsoft is adopting a carbon-neutral strategy for its data centers, offices, software
development, and air travel.174 This strategy aims to have facilities smart managed and to
bring in energy specialists to aid/lobby for sustainability within the company and
government.
Renewable and eco-friendly resources are becoming cheaper and easier to use.
 Solar and wind energy became the cheaper than fossil fuels in over 30 countries in 2016.175
 By the end of 2016, renewable resources generated more than 24% of global electricity.176
 According to the International Renewable Energy Agency, Solar module prices dropped 75%
worldwide since 2009. In addition, the cost of solar panels decreased about 100 times since
1977, with the price halving between 2008 and 2013 (see figure 17).177
Implications
Blizzard needs to improve its carbon footprint. As shown, the costs for solar energy are
decreasing exponentially. In addition, major companies such as Apple, Microsoft, and Amazon
are making the switch. Blizzard can improve upon its large carbon footprint by utilizing
renewable resources to power operations. Benchmarking the Silicon Valley companies above
will help Blizzard set goals. However, Blizzard cannot copy the above giants’ marketing
schemes. To publicize their efforts Blizzard will likely need to use social media in addition to in-
game promotions as opposed to publicizing through traditional media.
Economic
Increasing competition for high
skilled tech oriented labor
 The demand for high
skilled labor in the job
market is increasing, as
companies seek to go
high-tech.178 This change
is happening globally, but
is particularly strong in
the US due to drivers
Figure 18: Technology skills in demand
such as new tech startups Source: https://tinyurl.com/y8xsbfjm
and cyber-security deficits.
 The most sought-after tech jobs center on computer related degrees.179 In 2017 alone,
there were 500,000 open computing jobs while only 43,000 students graduated with
computer science degrees.180
 Companies will prioritize recruitment of high-skilled tech labor as technology continues
to move forward.181
Baby boomers are not retiring.

 According to Investopedia, many baby boomers have a marked lack of retirement
savings. The lack of savings is causing many Baby Boomers to forgo retirement and as a
result many millennials and gen Xers are finding it difficult to move up in their respective
jobs.182
 Baby Boomers are forgoing retirement and costing millennials jobs they’d otherwise be
competitive for. One startling statistic notes that math and computer jobs increased only
2% for millennials and 20% for baby boomers from 2007-2013.183
Additionally, according to Forbes, 91% of millennials expect to stay at a no more than 3 years.
This contributes further to a tougher job market as managers are unwilling to hire perceived
“job-hoppers”.184
Implications
Increasing demand for tech labor, primarily due to modernization, is causing a skilled worker
deficit. As a result, video game companies such as Blizzard will need to become more
competitive in the search for skilled labor as time progresses. Workers skilled in various
coding methods are particularly important, especially for gaming companies. (see Figure 18).
In addition, Blizzard will likely need to cut game costs as millennials tighten their budgets
due to an increasingly tough job market. Baby boomers and millennial habits are combining
to create a tougher job market for millennials. Lack of retirement funds are forcing baby boomers
to stay on longer and millennials are now known across the managerial world as job hoppers.
The tough job market could translate downward into cheaper games as millennials have less
money to spend overall.
Political
Increasing nationalism within the Trump administration will negatively impact US trade.
 US trade deficit with China is continuing to increase, in 2016 the deficit was 347 billion
dollars. As a result, the US government is seeking to implement and raise tariffs.185 A few
examples include Trump’s threatened 45% tariff on Chinese goods and 35% percent tariff
on Mexican goods.186,187
 Trump’s attempts to renegotiate both NAFTA and the TTP harms US trade and runs
counter to predecessor’s efforts.188 Previous presidents including Clinton, Bush, and
Obama supported free trade agreements that increased trade with Oman, South Korea,
and Mexico.189
 According to Forbes, Trump’s America First strategy is seeking to stop outsourcing
despite a concurrent demand for cheaper product. Demands for cheaper product are
winning out and many companies continue to outsource to lower their bottom line.190
Increasing usage of non-traditional

media as a means of political dissent.
 Social media sites like Twitter,
Instagram, and Facebook have
become platforms where people
can share their lives and can
discuss their political views.191
For example, YouTube stars
Phillip Defranco,
BadMouseProductions, and Milo
Yiannopoulos, express views
ranging from center to both alt-
left and the alt-right.192
 Many nascent political Figure 19: Percent of voters who follow political
figures on social media
movements utilize social media
Source: https://tinyurl.com/y896qcnj
to boost public visibility. Black
Lives matter is a prime example; they use social media to organize protests, debate, and
unify.193 Social media is also used at the other end of the spectrum; the alt-right uses the
platform to criticize mainstream media, organize free speech rallies, and unify like
groups.194 Non-traditional media is playing an increasingly outsized role in politics,
especially Twitter, due to the controversy surrounding President Trump’s account.195
Previously Obama’s Twitter was utilized sparingly and focused on non-controversies
such as last year’s baseball playoff race.196
Implications
Recent political changes could affect trade with foreign companies; however, Blizzard will
likely be able to continue pursuing foreign investment until changes take place. Companies
continue to operate as they did under Obama while the new administration is in the process of
changing US policy. The social media boom is causing more candidates to join social media in
an attempt to better connect with their voters, registered voters are following suit. (see Figure
19). Politics are starting to influence video games due to the aforementioned shift; therefore,
Blizzard will likely need to keep politics out of their games. Gamers reacted negatively to
liberal politics including GamerGate and were instead embraced by the alt-right. These
events polarized the gaming community into two camps along political lines. The appearance of
pushing an agenda will likely aggrieve potential customers.197
SWOT Analysis
Strengths Weaknesses
 Flagship video games  Overreliance on flagship
(e.g. Overwatch, Call of games
Duty, and World of  Buyout potential due to
Warcraft) perennially successful
 E sports leader; acquired flagship games
SWOT Analysis and Strategies MLG and has deals with  Overreliance on “crowded
both Facebook and market” business model
Twitch to stream events
 Outside investors,
specifically Tencent.
Funds used for company
growth
Opportunities Strengths/Opportunities Weakness/Opportunities
 Increasing marketing Strategies Strategies
opportunities related to Increase flagship game Acquire start-up companies to
social media advertisements on social media diversify portfolio (e.g. Bluehole,
 String start-up video game utilizing trailers, YouTube Supergiant, Team Cherry).
market celebrities, brand ambassadors Change business model, possibly
 New E-sports market (celebrity gamers). emphasize PR and become gamer
Continue aggressive expansion friendly.
into the E sports market e.g.
Twitch partnerships, E sports
acquisitions (Major League
Gaming).
Threats Strengths/Threats Strategies Weakness/Threats Strategies

 Picky consumers, gamers are Avoid over monetization of Prioritize state-of-the-art AI in
notoriously sensitive about flagship videogame e.g. order to differentiate in crowded
glitches and over inexpensive microtransactions market (e.g., Hello Neighbor type
monetization coupled with acceptable leveling AI).
 New entrants, mostly video systems (grind).
game start-ups Utilize outside investors to create
 Advanced/Innovative AI: new advanced AI (e.g. look to
New AI advancements will Tencent for assistance).
shine light on industry’s
stagnant status.
Executive Summary:
Blizzard Activisions biggest weakness is their limited portfolio. EAs disastrous Battlefront
Two release illustrates the problems with having few flagship titles. In this instance, EA
managed to ruin the battlefront series by overpricing micro transactions and making it nearly
impossible to progress in the game without them. Therefore, Blizzard should pursue a strategy
of subsidiary-type acquisition aimed at startups. Utilizing a subsidiary method would allow
Blizzard to be hands-off while giving the acquired companies much needed capital. Blizzard
should also prioritize a PR strategy utilizing celebrities that play their video games, primarily
through YouTube and other streaming services. Additionally, hitting EA for rampant
monetization within ads will highlight differences between the two companies. This will
maintain Blizzard Activisions advertising supremacy when compared with companies like EA.
Strengths/Opportunities Strategies:
Increase flagship game advertisements on social media utilizing trailers, YouTube celebrities,
brand ambassadors (streamers).
Activision Blizzard has flagship games such as Overwatch, Call of Duty, and Heroes of the
Storm. These games are played by popular YouTubers and brand ambassadors such as,
PewDiePie, Nadeshot, and Rooster Teeth.198 These users rely on social media platforms to
connect to these viewers and often get sponsored by gaming companies, (e.g., Blizzard, Riot
Games, and EA to exhibit their products).199 Blizzard already utilizes trailers for their flagship
games and most recently released an animated short for Overwatch on YouTube.200
Additionally, social media is becoming increasingly important in all sectors especially
advertising.201 Therefore, Blizzard should attempt to match the growth of social media by
upping their already substantial presence on social media. This can be done through the official
sponsoring of YouTube celebrities and brand ambassadors.
Continue aggressive expansion into the Esports market (e.g., Twitch partnerships, Esports
acquisitions (MLG)).
Blizzard is already a first mover in the Esports market and are best known for the Overwatch
league. Blizzard has already partnered with Twitch and acquired Major League Gaming
(MLG) in 2015.202 Blizzard should continue its expansion into the Esports market, especially in
traditional media. Esports’ presence is currently lacking in traditional media due to
generational differences in media consumption, however this could change as millennials and
gen Z age into the market. Doing so would make activision a first mover in new media and
traditional media,
Strengths/Threats Strategies:
Avoid over monetization of flagship videogame e.g. inexpensive microtransactions coupled
with acceptable grinds
Activision/Blizzard is currently striking a good balance with microtransactions and in-game

grinds. Call of Duty’s in-game leveling system (grind) is an industry standard and is was
adopted by similar games such as Battlefield 1 and Medal of Honor.However, the threat exists
for this strength to quickly change to a weakness. EA pushed the limits with over monetization
on Battlefront 2 and effectively ruined the series; it takes 40hrs to unlock premium characters
or $955 dollars to unlock all content.203 Therefore, moving forward Activision Blizzard should
continue its current monetization scheme, any change risks ruining a series entry.
Utilize outside investors to create new advanced AI (e.g. look to Tencent for assistance).
Activision Blizzard’s AI is standard for the industry and largely unintuitive. AI in Call of Duty
is a prime example, it relies on presets, as opposed to deep learning to determine a level’s
difficulty. This type of AI can be exploited easily by players and often falls victim to “speed
runners”.204 Speed runners exploit bugs and the game’s AI to post the fastest completion time.
As of 2017, Tencent has around a 5% stake in Activision Blizzard, as a result it is in Tencent’s
best interest that Activision Blizzard succeed in the US market. In addition, Tencent previously
displayed willingness to help its US investments; Tencent alerted Tesla to a cybersecurity flaw
in which the cars could be hacked.205 Therefore, to avoid stagnation Blizzard should partner
with Tencent to create advanced gaming AI not yet seen in mainstream FPS games.
Weaknesses/Opportunities Strategies:
Acquire start-up companies (e.g,. Bluehole, Supergiant, Team Cherry) in order to diversify
portfolio.
Activision/Blizzard is a highly successful video game company. Popular e-sports celebrities

attract millions of viewers and attendees to championships featuring Overwatch, CoD, and
HOTS.206 Activision/Blizzard relies heavily on its few flagship video games including
Overwatch; the game grossed over $1 billion in a one-year period starting with its release.207
Acquiring startups like Bluehole or Supergiant will diversify Activision Blizzard’s limited
portfolio by adding games currently outside of their established genres.
Change business model by emphasizing PR to become gamer friendly.
Activision Blizzard is already relatively gamer friendly; their microtransactions are priced
well, games are well coded, and they are very responsive to their player base. However, an
opportunity exists to increase PR gains, which could take the form of player endorsements,
increasingly affordable microtransactions, and even shots taken at EA. EA’s disastrous
Battlefront 2 marketing potentially ruined a franchise and even attracted the attention of the
feds. Subtly pointing out EA’s flaws could attract what has been described as an over
monetized player-base.208
Weaknesses/Threats Strategies:
Prioritize state-of-the-art AI in order to differentiate in crowded market (e.g., Hello Neighbor
type AI).
As described previously Activision Blizzard’s AI is currently an industry standard This is a

weakness many key competitors have including EA, Ubisoft, and Nintendo, innovation in this
area goes slowly due to picky consumers, however the current pace is not sustainable as it is
leading to serious stagnation.209,210,211 The stagnation is best illustrated by the previous sources,
speed runners have become a fixture in the industry and times do not appear to be going up.
Developing AI similar to Hello Neighbor could push times up, while also providing innovative
AI not yet seen in the mainstream.212
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See Macro Analysis

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[Draw your reader in with an engaging

Hadley May, Alex Trabold, Juan Ulloa

Key Findings and Strategic Implications

Key Findings Sources Implications for Activision Blizzard

1. Tencent’s 5% stake in  Competitor Activision Blizzard should consider upscale growth to

3. Rapid increase of AI  Macro Activision Blizzard should prioritize the safe

5. Rejection of over  Macro Activision should avoid changing the monetization

In addition, Activision Blizzard could possibly aim for

7. Increasing environmental  Competitor Ignoring increasing environmental consciousness could

Key Intelligence Topics & Questions

Blizzard & Tencent

Company Overview: Business Intelligence

Key Strengths: Commented [FS3]: Do not go bigger than 12 point font

 Abundant Outside investors: Commented [FS4]: Write this as a strength…this isn’t’

Value Chain Analysis

given about the company.21

Background and Company Information

The improvement of Tencents messaging apps

Tencent in the Gaming Industry

Acquisitions and Investments

Analysis of Management team

Product and Service portfolio

 BCG Matrix Analysis:

 Question Marks: Questions remain in Tencent’s portfolio. WeGames is a rebranding of TGP

Executive Summary Commented [FS8]: s

Marketing Activities and Trends

Attendance at Conferences and Trade Shows:

Since the establishing of Tencent

Figure 7: Tencent at Global Mobile Internet Conference

Figure 9: SY Lau speaking at Tencent MIND Conference 2015

Another of Tencent’s core strategies

Current efforts to achieve that end

Figure 11: Screenshot of CSR report detailing connection

These announcements indicate a newfound commitment to AI from Tencent; analysts previously

People’s daily: Honor of Kings “Poison”

PRODUCTS & SERVICES

Daniel Xu: Tencent buys Riot

Porters Four Corners

DRIVERS CURRENT STRATEGIES

Integration of AI into services

Large amount of available funds for impulsive yet safe investments

Communist party AI goals/Tech Macroenvironment

Tech bubble won’t burst

AI vital to future success

Western perspective needed to expand in international market

Lacking Significant Progress Outside China

Tencent Financial Ratio Analysis

The acid-test ratio measures a

Leverage and Solvency

Debt to Assets Ratio

Activity and Efficiency

Accounts Receivable Turnover Ratio

The Return on Assets Ratio

Tencent’s return on assets

increasing yearly, 2014-2015 increased ¥5,220million and 2015-2016 increased

Return on Equity Ratio

The Return on Equity Ratio is used

Tencent has a stronger ratio proving

Profit Margin Ratio

The Profit Margin Ratio measures

Tencent has a strong profit margin

Capital Market and Shareholders’ Return