performance

Q3 revenue of 167.19 billion yuan (yoy +8.1%, qoq +3.8%), slightly lower than the agreed estimate of 167.93 billion yuan (miss 0.4%); achieved gross profit of 88.83 billion yuan (yoy +16.1%, qoq +3.4%), slightly lower than the agreed forecast of 89.58 billion yuan (miss 0.8%); achieved net profit of 53.23 billion yuan (yoy +47.1%, qoq +11.8%), which exceeded the agreed expectations 45.33 billion (beat 17.4%).

In terms of gross profit, the gross profit margin of the VAS business was 57.5%, exceeding Bloomberg's unanimous expectations of 56.7%, mainly due to increased game traffic; the gross profit margin of the marketing business was 53%, lower than Bloomberg's agreed estimate of 56%; and the gross profit margin of the fintech business was 48%, lower than Bloomberg's agreed forecast of 47%.

Value-added services: Domestic long-term games are growing steadily, and overseas games are providing incremental growth

Domestic game revenue of 37.3 billion yuan (yoy +14%) was mainly driven by the growth of “Fearless Contract”, “Wang Zhe Rongyao”, “Peace Elite” and “DNFM”; international game revenue was 14.5 billion yuan (yoy +9%), which was lower than the agreed estimate of 15 billion yuan, mainly due to the increase in retention rates of some games, which extended the revenue deferral cycle accordingly. In terms of revenue, “VALORANT” expanded from client to console, driving a 30% year-on-year increase in revenue. Overall, the gaming business is growing steadily.

Marketing business: multiple scenarios+strong demand+AI empowerment, three parties drive business growth

Revenue from marketing operations was 30 billion (yoy +16.6%), which surpassed the consensus estimate of 29.76 billion. Demand for video channels, applets, and search ads is still strong. At the same time, AI boosts advertising business efficiency, increases delivery accuracy to a certain extent, and shortens the launch cycle. The Q3 transaction volume of the applet exceeded 2 trillion yuan, an increase of more than 10% over the previous year.

Fintech: Maintaining business stability under the influence of the macro environment

Fintech business revenue of 53.1 billion yuan (yoy +2%) was slightly lower than the agreed estimate of 54.06 billion yuan. The increase in the number of financial users and the increase in customer asset holdings contributed to the increase in financial service revenue; the increase in cloud service revenue and merchant technical service fees increased, and mobile enterprise service business revenue increased year-on-year.

AI deployment enhances room for future imagination

The company released an upgraded basic model, Tencent Hybrid Turbo, which uses a heterogeneous hybrid expert architecture (MoE). Compared with the previous generation Hybrid Pro, training and inference efficiency was doubled, and inference costs were reduced by half.

Investment advice

We expect the company's net profit (non-IFRS) for 24/25/26 to be 2208.04/ 238.912/260.274 billion yuan. The previous forecast was 2115.77/ 2373.04/ 261.435 billion yuan. The company's games and advertising have a long-term competitive advantage and maintain a “buy” rating

Risk warning

AIGC technology changes disrupt the current competitive landscape; policy and regulatory uncertainty; game development delays, etc.