Revenue grew rapidly, and profit exceeded expectations: 2Q24 achieved operating income of 161.1 billion yuan (yoy +8%), lower than Bloomberg's agreed estimate of 161.4 billion yuan; non-GAAP net profit of 57.3 billion yuan (yoy +55%), higher than Bloomberg's agreed estimate of 48.7 billion yuan.
Domestic games were affected seasonally, and international games showed a recovery trend: 2Q24 online game revenue was 48.5 billion yuan, an increase of 9% over the previous year, which is basically in line with Bloomberg's agreed forecast of 48.8 billion yuan. Among them, domestic market revenue was 34.6 billion yuan (yoy +9%), higher than Bloomberg's agreed forecast of 33.6 billion yuan, international market revenue of 13.9 billion yuan (yoy +9%), and lower than Bloomberg's agreed forecast of 14.1 billion yuan.
Ad revenue was higher than market expectations, and video accounts led to ad growth: 2Q24 ad revenue of 29.9 billion yuan (yoy +19%), higher than Bloomberg's agreed estimate of 29.4 billion yuan. Revenue growth was driven by the growth of WeChat video accounts, long videos, and applets. AI technology has had a positive impact. The advertising platform was upgraded to analyze user interests over a longer period of time and process user signals more frequently. AIGC App Yuanbao provides deep AI functions covering public accounts and has core competitiveness.
The fintech business continued to grow, and financial management and cloud services increased steadily: 2Q24 fintech and corporate services revenue of 50.4 billion yuan (yoy +4%), lower than Bloomberg's agreed forecast of 52.4 billion yuan. The further slowdown in the growth rate of commercial payment revenue reflects the slow growth in consumer spending. At the same time, revenue from consumer loan services declined due to strengthened risk management and control measures, while revenue from financial management services recorded a double-digit percentage increase. Revenue from the enterprise service business achieved a growth rate of more than ten points, benefiting from the increase in revenue from the cloud service business (including the increase in commercialization of enterprise WeChat) and the increase in technical service fees for video account merchants.
The advertising business and value-added services mainly drive the overall gross margin increase: 2Q24's overall gross margin was 53.31% (YoY+5.83pct), and gross margin is growing rapidly due to the rapid growth of high-margin revenue sources. Sales expenses for the quarter were 9.156 billion, up 10.2% year on year, management expenses were 27.491 billion, up 8.2% year on year, and management expenses increased 0.1 pct year on year.
Profit forecast and investment rating: The company's gross margin increased more than expected. We raised the adjusted net profit for 2024-2026 from 193.2/235.7/266.3 billion yuan to 205/238.1/269.2 billion yuan, corresponding to 2024-2026 PE (non-IFRS) of 17/14/13 times (HKD/RMB = 0.92, August 18, 2024). The company still has solid business barriers and a strong ecosystem. Overall business revenue such as video accounts, applets, and fintech continues to grow, so we maintain the company's “buy” rating.
Risk warning: Policy and regulatory risk; operating data lower than expected; monetization pace lower than expected.