$TENCENT (00700.HK)$ The latest quarterly Earnings Reports will be released on March 19. The market generally expects TENCENT to achieve revenues of 168.435 billion yuan in Q4, an increase of 8.53% year-on-year; the expected EPS is 4.553 yuan, an increase of 62.21% year-on-year.
Since the beginning of the year, Hong Kong stock technology stocks have performed remarkably, among which$TENCENT (00700.HK)$the stock price has continued to rise, breaking through the 500 Hong Kong dollar mark, with a year-to-date increase of over 23%.
Many institutions hold an optimistic attitude towards Tencent's performance, believing that it will perform steadily in various fields such as gaming, advertising, and CNI Xiangmi Lake Fintech Index. Over 90% of Analysts give Tencent a 'strong buy' rating, with the average institutional target price at 509 Hong Kong dollars, and the highest target price at 676 Hong Kong dollars.
Looking ahead to this earnings report, investors are still focused on revenue from the gaming sector, growth in high-margin businesses such as video number advertising, AI investment layout, and the latest repurchase guidance are also worthy of attention.
The gaming business is performing steadily, with revenue expected to grow by more than 16% year-on-year.
In terms of value-added services, TENCENT's gaming business continues to play a driving role. JPMorgan expects the revenue from value-added services in the fourth quarter to reach 76.61 billion yuan, a year-on-year increase of 10.9%. Among them, game revenue is expected to be 47.53 billion yuan, with a year-on-year growth of 16.2%.
In the domestic market for games, Everbright expects the company's domestic market game revenue in Q4 to be 31.94 billion yuan, a year-on-year increase of 18.3%.
Popular games like 'Honor of Kings' and 'Peacekeeper Elite' remain among the top-selling iPhone games in Q4. In January this year, 'Honor of Kings' climbed six places to become the highest-grossing mobile game in the world again. At the same time, new games from TENCENT such as 'Valiant Contract' and 'Dungeon and Fighter: Origin' are also expected to contribute incremental revenue, considering that the product release cycle for games is relatively long, which is expected to continue confirming revenue in Q4.
In overseas games, Everbright expects the company's overseas market game revenue in Q4 to be 15.59 billion yuan, a year-on-year increase of 12.2% and a quarter-over-quarter increase of 7.5%.
'Dark Zone Breakthrough' overseas version and 'Delta Operation' continue to gain momentum, while 'Path of Exile 2', which was newly released last December, has shown significant popularity, selling over a million copies; incremental revenue from overseas games is expected to gradually be released in subsequent quarters. Ma Huateng pointed out in an internal meeting at the beginning of this year that TENCENT's share of overseas game business has approached half of its domestic game business and expects even faster development in the future.
UBS Group recently published a research report indicating that TENCENT's gaming business performs steadily, providing a certain visibility for profitability. Data shows that TENCENT's total domestic game revenue exceeded expectations during the Lunar New Year period, with an estimated year-on-year increase of double-digit percentage. In addition to contributions from the blockbuster 'Dungeon and Fighter: Origin', it also benefits from its existing evergreen games, such as flagship game 'Honor of Kings' launching new skin sets at different price points to meet diverse user demands.
Additionally, as AI technology accelerates its penetration into the gaming industry, the industry is experiencing a transformation across the entire chain from development to experience. Domestic manufacturers' explorations in AI interactive gameplay, smart NPCs, and dynamic content generation may set a 'guiding star' for future industry development. TENCENT updated the self-developed voice command FPS AI teammate F.A.C.U.L. in 'Dark Zone Breakthrough' and integrated DeepSeek technology in 'Peacekeeper Elite' to enhance the authenticity of human-machine cooperation in tactical confrontation scenarios.
The advertising business is expected to achieve double-digit growth, and the merchant ecosystem of WeChat stores is gradually being established.
In terms of social networks and Marketing Services, the data from mini games is striking, and features like video accounts and mini programs may become new growth engines. The ecosystem for WeChat small store merchants is gradually being established, and the demand from advertisers in the broader e-commerce Industry is expected to increase.
In the field of social networks, Everbright Securities expects that in Q4 2024, social network revenue will reach 29.09 billion yuan, a year-on-year increase of 3.1%. This growth is mainly driven by the growth of WeChat mini games, which are gradually maturing in commercialization, with potential for multi-scenario displays like PC and video accounts.
In terms of advertising business, although the macroeconomic recovery is cautious, it is expected that TENCENT's advertising will maintain rapid growth. Everbright Securities predicts that advertising revenue will reach 33.74 billion yuan in Q4 2024, a year-on-year increase of 13.2%. With the integration of WeChat small stores and various components of the WeChat ecosystem, the marketing space and efficiency across multiple scenarios are expected to improve.
In the WeChat ecosystem, the launch of WeChat small stores and the "gift" feature will activate traffic across the board, combined with the shopping and social needs brought by holidays like the Spring Festival, which is expected to further enhance GMV levels.
As an important layout for TENCENT in the social e-commerce field, WeChat small stores have been undergoing continuous upgrades and transformations in recent years. Last August, TENCENT announced formal support for merchants to upgrade their video account small stores to WeChat small stores, further integrating the e-commerce ecosystem; in September last year, WeChat small stores lowered the entry threshold for merchants; and in December last year, WeChat launched the "gift" feature for the first time, further activating social e-commerce traffic and is expected to improve the ROI of WeChat e-commerce advertising.
With social e-commerce at its core, the gift feature has strong pulling power for merchants, and its future contribution to overall advertising revenue is worth looking forward to. Sealand stated that calculations show that the long-term annual increase in revenue brought by WeChat small stores to TENCENT advertising is expected to exceed 60 billion yuan.
In addition, AI continues to empower Marketing Services, which is expected to improve advertising efficiency. Institutions indicate that hybrid models are expected to be used more deeply to analyze user behavior on WeChat, accurately summarize profiles, and optimize ad targeting, thereby promoting increased click-through rates for video accounts. On January 8, the "Shining Bright" 2025 TENCENT advertising operator industry ecosystem conference was held, where Yang Fan, head of TENCENT's commercial AI strategy products, stated that the application of AIGC products can effectively help advertisers reduce costs and increase efficiency during placements, while producing higher quality creative content.
The payment business is expected to improve slightly.
In the area of CNI Xiangmi Lake Fintech Index and enterprise services, Everbright expects Q4 revenue to reach 55.84 billion yuan, a year-on-year increase of 2.7%. This steady growth is mainly attributed to the recovery of the macro economy and the increase in market share of e-commerce following the launch of WeChat mini-stores, as well as a slight improvement in commercial payment business in the fourth quarter. At the same time, the technical service fees for video account selling have increased, and revenue from Cloud Computing Service is expected to remain robust.
Sealand stated that the payment business has slowed in growth rate compared to the first half of the year due to macroeconomic impacts, but Q4 showed improvement compared to Q3. Wealth management and other businesses maintained healthy growth, which is expected to drive profit structure improvement. It is anticipated that in 2024, the wealth management AUM (including WeChat balance and wealth management service) will achieve year-on-year growth of over 15%, sustaining good growth in the wealth management business, while micro-loan business steadily progresses, which will also lead to an improvement in profit structure in the CNI Xiangmi Lake Fintech Index sector.
In terms of enterprise services, TENCENT's Cloud Computing Service has made significant progress in 2024, with an expanding partner network contributing one-third of TENCENT's overall revenue. Public cloud revenue achieved double-digit year-on-year growth, surpassing the market average growth rate, while SaaS revenue growth reached 40%, more than three times the average market growth rate.
In the fourth quarter, TENCENT Cloud will continue to focus on the growth market of public cloud, exploring demands from emerging industries, increasing investments in AI, Big Data, and other fields, and providing more competitive digital solutions for enterprises to drive continuous growth in enterprise service business revenue.
Major firms are bullish on TENCENT's AI potential.
This year, DeepSeek has emerged, attracting widespread market attention. Multiple products from TENCENT are integrated with DeepSeek, with WeChat integration being particularly noteworthy. On February 15, WeChat search began a grayscale test of the 'AI search' function, integrating the DeepSeek-R1 model into WeChat search features.
Institutions indicate that WeChat, as the largest social platform in the country, has a monthly active account number of 1.359 billion (as of March 2024). After integrating the DeepSeek-R1 model, users can generate content directly through AI and share it in their social circles, significantly enhancing information acquisition and interaction efficiency. Its full ecosystem of 'search + e-commerce + social' is deeply integrated with AI, expected to break through traditional traffic ceilings and further consolidate TENCENT's leading position in AI applications.
In addition, TENCENT's AI assistant 'TENCENT Yuanbao' is the fastest-growing app in recent AIGC applications in terms of user growth. In early March, TENCENT Yuanbao ranked first in the free app download charts in the Apple App Store in China, surpassing DeepSeek.
Ma Huateng stated at the employee meeting at the beginning of the year that he is bullish on the potential improvement in advertising business brought by AI in the future. He also mentioned that TENCENT will continue to invest resources in computing power reserves, hoping that each BG can embrace the productization of large model applications.
Major firms are optimistic about TENCENT's AI potential, as the continuous maturity of AI technology and the ongoing expansion of application scenarios are expected to bring TENCENT new sources of revenue growth and valuation enhancements.
Goldman Sachs recently pointed out that with the rapid development of AI technology and the continuous expansion of application scenarios, the competitive landscape of China's Internet industry is gradually dividing into two camps: AI Infrastructure and AI Applications. Among them, Alibaba, with its strong Cloud Computing Service infrastructure, is a key player in AI Infrastructure; while TENCENT, leveraging its robust ecosystem and user experience in C-end applications, has become a core beneficiary in the field of AI Applications.
Citibank stated in its report that the deep integration of DeepSeek in WeChat and TENCENT Cloud Computing Services is expected to accelerate the growth of cloud usage demand and accelerate the revenue growth of TENCENT's enterprise services. It is anticipated that the attraction of the 'Yuanbao' application will further enhance, and the user stickiness of WeChat will improve, with search advertising revenue possibly beginning to rise from 2025.
UBS Group stated that TENCENT's products gradually adopting DeepSeek can create new monetization opportunities, bringing incremental traffic for content and promoting the development of WeChat AI agents. Considering that TENCENT's users and ecosystem cover the entire process from chatbots, mini-programs to payments, it is believed to have a certain development advantage.
Macquarie is optimistic about the traffic and revenue growth potential brought by the integration of TENCENT and DeepSeek-R1. DeepSeek-R1, combined with TENCENT's Cloud Computing Service infrastructure and optimization technology, can enhance AI accuracy and customization capabilities, increase WeChat search traffic and user engagement, help TENCENT become a 'super AI agent', and expand AI into more vertical fields for monetization. Additionally, AI can provide low-cost content production tools for video number creators.
Morningstar stated that the integration of DeepSeek into TENCENT's communication application WeChat is expected to enhance WeChat's long-term growth potential. This move indicates that TENCENT prioritizes functionality and user experience over exclusivity. Although this action will not immediately boost earnings, it will strengthen the role of WeChat in the daily lives of its 1.3 billion users, solidify its intangible asset moat, and potentially achieve long-term monetization growth through increased usage rates.
Mooers, are you bullish on TENCENT's fourth quarter performance.
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