Fire Rock,Tencent's next acquisition target?

Fire Rock,Tencent's next acquisition target?

Fire Rock Holdings Limited ("Fire Rock" or the "Company") (HKSE: 1909.HK), a Chinese game developer, has recently announced the acquisition of online games operating service provider in PRC at a consideration of approximately RMB$900 million, moving towards the full industry chain model of "development + operation". Share price of Fire Rock has rocketed 388% in over the last five months and its market value has reached HK$5.28 billion. The rapid growth of the share price grabbed the spotlight in the capital market. The question is, will the upward trend just stop there?

With the rapid development of smartphones and tablets the number of game users in China doubled to 550 million in five years. The consumption scale for these online players shall reach RMB$90.69 billion (US$13.81 billion) in Q1 2020, indicating that the consumption power is expected to meet the scale of USD55 billion in 2020.

Attributable to the soaring number of game users, Fire Rock's revenue has reached RMB $304 million in 2019, representing an increase of 89.2% as compared to 2018. Company's profit rose sharply by 214.4% y-o-y to RMB$192.7 million in June 2020.

Prior to founding Fire Rock, ZHANG Yan, chairman of Fire Rock, has also founded the Domain Computer Network Company Limited ("Domain Computer Network") in 1997. Chinese tech giant Tencent (HKSE:700) has acquired 19.9% shareholdings of Domain Computer Network in 2005 and eventually a full acquisition in 2010. Since the acquisition, there have been rumors that Zhang has a very close relationship with Tencent which the market infers that Tencent may also acquire Fire Rock in the near future, not to mention, with the promising business performance of Fire Rock and the all-rounded development of the Company upon the acquisition.

What is also worth noting is that Fire Rock is attractive to tech giants due to its latest development in the Asia Pacific region. Number of game users has not been growing only in China, but also in the Asia Pacific region. Targeting on the casual players with stable spending power in emerging markets, Fire Rock rolled out two games in Thai version in July 2019 and one more in May 2020. The Company's revenue generated in Asia Pacific rose by 1903% y-o-y to RMB$13.49 million in 2019. The growth remains robust and the revenue generated in Asia Pacific increased from RMB$236K to RMB$27 million. Fire Rock's outstanding performance can definitely attract investors' attention and make it become the next acquisition target of tech giants.