While Hong Kong stocks are full of joy and encouragement, a wave of financial reports from large technology stocks has quietly arrived, which has undoubtedly once again “added fuel” to the popular market sentiment.

The “stock king” Tencent, which has received much attention from the market, is also scheduled to announce the results for the first quarter of 2024 on May 14. It is worth noting that Tencent's recent performance has been extremely impressive. Since March, the stock price has risen rapidly, with a cumulative increase of more than 33%. Looking at the extended cycle, Tencent changed its previous decline this year and recorded an impressive annual increase of about 25%.

Regarding the upcoming first-quarter earnings report, the market generally predicts that Tencent is expected to achieve revenue of RMB 158.583 billion, an increase of 5.73% over the previous year; earnings per share will be 3.69 yuan, an increase of 39.66% over the previous year.

Furthermore, a total of 39 analysts recently rated the stock, of which over 90% gave a strong recommendation rating; the average analysts' target price was HK$447.33, which has a potential increase of about 21% compared to the latest closing price.

Focusing on the quarterly report, the market expects Tencent's online advertising to grow steadily in the first quarter, and the game business is still recovering from a high base. It is recommended to pay attention to Tencent's new games to be launched, video ads and live streaming, commercial service revenue growth and the benefits brought by the mixed-language model, macro-consumer trends, shareholder returns, and profit and profit margin trends. In the second quarter, Tencent's blockbuster game “DNF” mobile game was launched. It is recommended to observe the progress of the new game.

The market focuses on the performance of the game business

As far as the game business is concerned, due to the high base for the same period last year and the lack of major games launched during the season, institutions generally predict a slight decline in game revenue in the first quarter, and it is recommended to focus on the market performance of new games.

Citi predicts that Tencent's local game revenue will drop 6% year-on-year and international game revenue will rise 1.5% year-on-year. The bank expects domestic game revenue to resume positive year-on-year growth in the second quarter; Morgan Stanley predicts a 3.6% year-on-year decline in Tencent's game revenue, mainly driven by weak local growth, and also maintains the forecast of a bottoming rebound in the second quarter.

BOC International expects Tencent's domestic mobile game sales to increase 11% year-on-year in the first quarter. According to data from Sensor Tower, Qimai Data, and Dot Data, Tencent's local sales increased 11% year-on-year to 3 billion yuan in the first quarter of 2024, of which the old game “Golden Shovel” contributed 1.3 billion yuan in revenue growth. Overseas turnover increased 1.6 billion yuan/ 25% year over year, mainly driven by Supercell games such as “Wild Brawl”.

In addition, BOC International estimates that game revenue for the first quarter fell 2% year on year, mainly due to 1) based on the above turnover data, local mobile game revenue may still decline year on year; Supercell turnover began recovering in the 3-4 quarter of last year and is gradually reflected in revenue, and overseas games are expected to increase 4% year on year; 2) mobile games had a high base last year, and Nexon led game revenue in China to drop 35-44% year on year. Judging from the popularity of March, the thermal value of “DNF” was -37% year on year, “LoL” remained flat year on year. Increase 60 %+.

Guoxin Securities anticipates a 2% year-on-year decline in gaming revenue. In terms of rhythm, the cardinality effect superimposed the blockbuster game “DNF” mobile game, and it is expected that Tencent games will resume 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 number of “Wang Zhe Rongyao” users increased 6% year-on-year in March.

Guohai Securities anticipates a 1% year-on-year decline in game business revenue in 2024Q1. Influenced by the high base in the same period last year, leading domestic games were under pressure in the short term. “League of Legends Mobile Game”, “Battle of the Golden Shovel”, “Dark Zone Breakout”, and the overseas game “Wild Brawl” performed well. The bank is looking forward to online performance such as “DNF Mobile Games” in Q2, which is expected to drive the game business back to growth.

Ad revenue is expected to achieve double-digit growth

In terms of advertising revenue, agencies generally give positive expectations and predict that advertising revenue is expected to achieve double-digit growth this season.

Morgan Stanley predicts that Tencent's advertising revenue in the first quarter will increase 20% year-on-year to RMB 25.157 billion, mainly supported by strong technological updates and video account monetization performance. Artificial intelligence applications will continue to improve ad targeting.

BOC International also bluntly stated that Tencent's advertising business performance was “the best in the industry”:

Compared to the industry, Tencent's video ad inventory is still increasing. With the increase in the usage time of video account users, as well as the increase in content recommendation optimization and ad conversion rates with technical support, advertising revenue is expected to increase 20% year-on-year in the first quarter.

Guohai Securities expects an 18% year-on-year increase in advertising revenue in the first quarter. According to the latest research report, video advertising revenue will continue to increase significantly, and is expected to be driven by internal circulation e-commerce to further increase the gross margin of the advertising business in 2024; launch a new marketing science system - Tencent Advertising Ruyi, which provides data products for marketing decisions and scientific measurement, and also launch a one-stop AI advertising creative platform, covering implementation scenarios such as Wensheng Map, Tucson Map, and product background synthesis to reduce advertising costs.

High repurchases boost stock prices and weaken the impact of majority shareholders' holdings reduction

In the first quarter of this year, Tencent once again became the “Hong Kong Stock Repurchase King,” with an overall repurchase amount of 14.83 billion yuan, more than three times Tencent's repurchase amount of 4.63 billion yuan in the same period last year. On March 20, when Tencent released its annual report, it was announced that it would invest no less than HK$100 billion to repurchase shares in 2024, which is more than double the 2023 repurchase amount.

According to data from the Futu Niuniu App, as of the repurchase date of the latest announcement (April 12), Tencent's current total repurchases during the year are approximately HK$23 billion.

Earlier, Tencent also stated in its annual report that it will continue to increase shareholder returns. It plans to pay dividends of HK$3.4 per share in 2023, totaling about HK$32 billion, an increase of 42% over the previous year.

Repurchases combined with dividend strength and resonance with performance have jointly driven the recent rise in Tencent's stock price. According to market opinion, the amount of Tencent's high-value repurchase in '24 is expected to exceed the majority shareholders' holdings reduction, and the impact of Prosus's sale of Tencent shares on stock prices is expected to weaken.

Can Tencent's Q1 performance be better than expected?

How will the stock price be interpreted after the results?

What do you think Tencent's long-term investment is worth?

Welcome to share your opinions in the comments area~

Click to make an appointment:Tencent Holdings 2024Q1 Results Live Stream (Simultaneous Interpretation)

In addition, Futu's senior strategist will check Tencent's performance with everyone at the physical store on Thursday, May 16 to decide whether the stock price can regain its upward trend. Niu friends are welcome to participate in online and offline lectures~