Matters:
Tencent Holdings will announce its results for the first quarter of '24 on May 14.
Guoxin Internet views:
With 2024Q1, we expect Tencent to achieve revenue of 157 billion yuan, an increase of 5% over the previous year. Online advertising is expected to grow steadily in the first quarter, and the game business is still recovering from a high base. Specifically: ① In terms of games, the slow pace of new 2024Q1 product launches is compounded by the high base for the same period last year during the Spring Festival, and revenue is expected to drop 2% year over year; judging from the pace, the base effect is compounded by the launch of the blockbuster game “DNF” mobile game, and it is expected that Tencent games will begin to recover in the second quarter.
Looking at specific games, we have observed that the flow of “Wang Zhe Rongyao” and “Peace Elite” declined under the cardinal effect. However, commercialization of mid-range products is progressing well. In addition, according to Questmobile data, we observed a 6% year-on-year increase in the total length of Tencent games in 24Q1. Among them, “Battle of the Golden Shovel” and “League of Legends” mobile game operating data increased steadily, and the total user time of “Wang Zhe Rongyao” increased 6% year over year in March. ② In terms of advertising, video accounts are expected to drive an 18% year-on-year increase in advertising revenue. The growth in video advertising is mainly driven by rapid traffic growth; ③ Fintech and corporate service revenue is expected to increase 7% year on year, and the month-on-month slowdown is mainly due to a high base for the same period last year.
2024Q1 is expected to achieve non-IFRS net profit of 43.4 billion yuan, a year-on-year increase of 33%; non-IFRS downward net profit margin of 27%.
The profit growth > revenue growth trend is expected to continue for 24 years due to changes in the revenue mix combined with the release of operating leverage.
Investment advice: It is recommended to focus on the market performance of new games and the development progress of video accounts. In the second quarter, Tencent's blockbuster game “DNF” mobile game was launched. It is recommended to observe the progress of the new game. Tencent's future profit release is highly deterministic and sustainable. Changes in revenue mix and operating leverage are long-term profit drivers. Tencent Video had a rapid user base in the early stages through social distribution. Currently, it has entered the early stages of commercialization. Video accounts have great potential for development, and advertising and live e-commerce are high-margin businesses, focusing on the impact of commercialization progress on Tencent Holdings' performance. The adjusted profit for 24-26 is estimated at $1847/2105/23.8 billion (maintaining the original forecast), maintaining the “buy” rating.
Risk warning
Policy risks; risk of macroeconomic weakness due to repeated pandemics; risk of intense competition in the advertising industry; risk of new games not being launched as scheduled, etc.