In a bold move to secure its future, Tencent, the leading game developer in China, is setting its sights on the international market as growth stagnates back home. The company is not only searching for foreign players to embrace its own creations but is also engaging heavily in investments across other intellectual properties.

This pivot comes with risks highlighted by a notable legal battle on August 12 in Shenzhen concerning Tencent’s flagship mobile game, Honor of Kings, which remains the highest-grossing mobile game worldwide. Despite its impressive earnings—around USD 1 billion from January to June—concerns arose when a plaintiff accused Tencent of manipulating the game’s matchmaking system to give an advantage to players on a winning streak. Tencent’s refusal to unveil its algorithms, citing potential misuse, has put the company in a precarious position.

With about 30% of its revenue stemming from gaming—two-thirds of which is derived from China—any legal repercussions could unleash significant damage if fans start to turn away from Honor of Kings.

Despite launching several new games, Tencent faces the pressing challenge of finding a worthy successor to Honor of Kings to maintain a robust growth trajectory. Recent earnings revealed a healthy 15% annual revenue rise to RMB 184.5 billion (USD 25.8 billion) and a net profit increase of 17% to RMB 55.6 billion (USD 7.8 billion), largely thanks to its enduring titles.

China's gaming landscape is seeing more opportunities, with regulators approving over 810 new game releases in the first half of this year—20% more than last year. However, the total number of gamers in China remains stagnant at around 679 million, prompting Tencent's executives to publicly express their aim for over half of their gaming revenue to originate from outside the country.

So far, Tencent’s strategy has involved acquiring popular IPs globally and introducing them to the Chinese market, leveraging their strong domestic base. Now, as that market saturates, the focus shifts towards enhancing global outreach.

In a strategic partnership, Tencent acquired a 25% stake in a new subsidiary of French publisher Ubisoft, gaining access to blockbuster titles like Assassin’s Creed and Far Cry. Additionally, there is growing speculation surrounding a potential acquisition of Japan's Nexon, known for its hit Dungeon & Fighter Mobile.

Complementing its acquisition strategy, Tencent is also developing games designed specifically for local markets—bypassing the licensing costs associated with third-party IPs. The company’s Level Infinite brand, based in Singapore and the Netherlands, is tasked with the global publishing of its games, focusing on localization to resonate better with international audiences.

However, competition in global markets is fierce. Recent rankings by Sensor Tower reveal that Tencent has no title among the top-grossing mobile games in Japan, overshadowed by rising competitors like Mihoyo, known for Genshin Impact, which has successfully captured majority revenue from outside China.

To thrive in this evolving landscape, Tencent must navigate IP rights concerns meticulously, especially after Sony Group recently filed a lawsuit against Tencent for allegedly copying elements from its Horizon series. This legal distraction could pose a significant hurdle as Tencent aims for a bold and expansive journey into the world of gaming beyond China's borders.