23Q4's revenue was $155.2 billion (yoy +7.1%, qoq +0.4%). The gross margin was 50.0%, (yoy+7.3pp, qoq+0.5pp). 23Q4 net profit to mother (IFRS) was 27 billion (yoy -74.6%, qoq -25.3%); net profit (non-IFRS) was 42.7 billion (yoy +43.7%, qoq -5.0%).
23Q4 value-added service revenue of 69.079 billion (yoy -1.9%, QoQ -8.8%). Game revenue in the international market was 13.9 billion (yoy +4.5%, qoq -0.1%), mainly reflected by Supercell's repositioning of several of its games, and strong growth in “PUBG MOBILE” and “VALORANT”. Game revenue in the local market was 27 billion yuan (yoy -3.2%, qoq -17.4%), mainly due to reduced contributions from “Wang Zhe Rongyao” and “Peace Elite”. Social networking revenue of 28.2 billion dollars (yoy -1.4%, qoq -5.1%) was partially offset by increased revenue from paid music members and mini-game platforms due to a decline in revenue from live music streaming and game streaming services. We expect the commercialization of “Wang Zhe Rongyao” and “Peace Elite” to increase year-on-year in 24Q2, and the launch of “DNF” is expected to drive year-on-year growth.
23Q4 online advertising revenue was 29.79 billion yuan (yoy +20.8%, qoq+ 15.8%). The growth was mainly driven by continuous upgrading of video accounts and advertising platforms. Among them, spending in the Internet service, healthcare, and consumer goods categories increased significantly. Accurate AI advertising increased click-through rates and increased ad revenue, while the ad load was far lower than that of industry peers; WeChat search had a DAU of over 100 million, and revenue increased several times year over year, thanks to content QV increasing by more than 30% year over year. We expect that the supply-side volume of applet content will drive the growth of WeChat advertising demand.
23Q4 fintech and corporate services revenue was $54.379 billion (yoy+ 15.1%, qoq +4.5%). The increase was mainly due to increased payment activities and increased revenue from financial services. Enterprise service revenue achieved a year-on-year increase of about 20%, mainly due to an increase in video delivery technology service fees and a steady increase in cloud service revenue.
In terms of games, “DNF” is expected to contribute an increase in Q2 launch, while the commercialization of “Peace Elite” and “Wang Zhe Rongyao” 24Q2-Q4 is expected to increase year-on-year. In terms of advertising, there is room for improvement in video ad load, and demand for internal circulation continues to grow. Net profit attributable to IFRS for 23/24/25 is estimated to be 1152/1339/153.3 billion yuan (the original value for 23-25 was 1247/1473/164.7 billion yuan, and profit forecasts were lowered due to assumptions such as tax increases), and the net profit attributable to non-IFRS for 23/24/25 is 1,577/1894/215.8 billion yuan. Using the 2024 SOTP valuation, a corresponding target price of HK$375.04 (RMB 339.90 HKD/RMB=0.91) was given to maintain the “buy” rating.
Risk warning
Policy risk, risk of game revenue falling short of expectations, competition risk in the advertising industry