The company will release its results report for the second quarter of 2024 in the near future. We expect Q2 to achieve total revenue of 161.5 billion yuan, an increase of 8% over the previous year, and non-IFRS net profit of 48.8 billion yuan, an increase of 30% over the previous year.
Online game business: “dNF” mobile game launch performance is impressive, and the growth rate is expected to continue to pick up in the second half of the year. 24Q1's game business revenue was 48.1 billion yuan, down 0.5% year over year. In Q2 '24, we expect the company's game business revenue to reach 48.2 billion yuan, up 8% year on year, and resume positive growth. The performance of the company's flagship games “Wang Zhe Rongyao” and “Peace Elite” has rebounded. “DNF Mobile Games” has continued to dominate the list since its launch on May 21. According to SensorTower, “DNF Mobile Games” topped the Chinese App Store mobile game revenue rankings in June, and “Wang Zhe Rongyao” and “Peace Elite” ranked second and third respectively. As a classic IP, “DNF Mobile Game” performed brilliantly after its launch. Currently, along with “Wang Zhe Rongyao” and “Peace Elite”, it occupies the top three positions in domestic mobile games, while bringing new growth to the company's game business. On the overseas side, Supercell's “Burst Squad” was officially launched. The pre-launch reservation exceeded 40 million, and the first day's turnover exceeded 10 million, and the performance was good. Looking at subsequent products, “Need for Speed: Assemble” began public beta on July 11, the SLG game “World Qiyuan” was launched on July 16, and the Wangzhe Rongyao IP game “Dawn of the Stars” is also expected to be launched during the summer, with plenty of reserves. Considering that “DNF Mobile Game” was launched in late May and there are delays, it is expected that Q3's game business revenue growth rate will rise further.
Social networking business: The live streaming ecosystem of video accounts is gradually improving, and paid video and music members are growing steadily.
The 24Q1 social network revenue was 30.5 billion yuan, down 2% year on year. We expect the company's social network revenue to reach 30.8 billion yuan in Q2, an increase of 4% year on year. Tencent Video launched a number of blockbuster dramas such as “The Story of the Rose” and “Celebrating the Years 2” on Q2, which is expected to drive continued growth in the number of members. Tencent Music continues to expand the supply of high-quality content, and is expected to achieve simultaneous growth in the number of members and ARPU.
Online advertising business: Video advertising continues to grow, and AIGC enables system optimization and material creation. Online advertising revenue in 24Q1 was 26.5 billion yuan, up 26% year on year. We expect Q2 company advertising revenue to reach 30.4 billion yuan, an increase of 22% year on year. In May 2024, WeChat advertising was launched to directly jump to the video account small store advertising link, which supports the five major traffic scenarios of video accounts, friend circles, public accounts, applets and search, providing massive traffic to cover new conversion groups. The aim is to improve the efficiency of video channel merchants in obtaining traffic and accelerate business growth. At the same time, AIGC also continues to empower the company's advertising product system optimization and material production, enhance advertisers' ROI, and drive the company's advertising business to continue to grow.
Fintech and corporate services: Technical service fees for video merchants are expected to continue to grow, and the AI application “Yuanbao” is officially launched. Fintech and corporate services revenue in 24Q1 was $52.3 billion, up 7% year on year. In Q2 '24, revenue from fintech and corporate services is expected to reach 52.1 billion yuan, up 7% year on year. Affected by the overall macro environment, payment business performance is relatively stable. The increase in video delivery during the 618 period is expected to drive the increase in merchant technical service fees. On the AI side, the company officially launched the “Yuanbao” app on May 30. Based on the mixed element model and search engine, it provides functions such as AI search, multi-format multi-document summarization, translation, and oral sparring. Further iteratively upgrading the mixed element model, and the pace of innovative technology exploration continues to accelerate.
Maintain a “Highly Recommended” investment rating. 24Q1 achieved non-IFRS net profit of 50.3 billion yuan, a year-on-year growth rate of 54%. We expect Q2 to achieve non-IFRS net profit of 48.8 billion yuan, a year-on-year increase of 30%. Based on the good performance of various high-margin businesses, the profit side growth rate is expected to continue the impressive performance of previous quarters. The company's main business is steady, and it continues to be optimistic about its commercial monetization capacity. The adjusted net profit for 2024-2026 is 204.8, 226.2, and 244.3 billion yuan, corresponding to PE of 16.3, 14.7, and 13.6, respectively. Maintain a “Highly Recommended” rating.
Risk warning: Internet industry regulatory risks, risks of increased competition in the game industry, potential risks of poor macroeconomics to advertising business, intense competition in the cloud computing industry, risks that drag down profitability, etc.