The advertising and gaming business performed well, and profits increased significantly. With 2024Q2, Tencent achieved revenue of 161.1 billion yuan, an 8% year-on-year increase. The main growth was contributed by the advertising and gaming business, and the fintech business was weak at the macro level. Profit side: Adjusted operating profit of 24Q2 was 58.4 billion yuan, a year-on-year increase of 27%. Non-IFRS net profit was $57.3 billion, up 53% year on year; non-IFRS net profit margin was 35.6%, up 10 pcts year over year. The sharp increase in interest rates is mainly due to: 1) high-margin business development; 2) profit release from joint ventures and joint ventures (Pinduoduo, Kuaishou, Epic, etc.); and 3) one-time deferred tax rate transfer.
Online gaming: Revenue is +9% YoY, and is expected to accelerate in the second half of the year. In 24Q2, the company's online game business revenue was 48.5 billion yuan, up 9% year on year. 1) Game revenue in the local market increased 9% year over year to RMB 34.6 billion, mainly due to the revenue growth of “Dreadless Contract” and the successful launch of the “DNF” mobile game.
“Wang Zhe Rongyao” and “Peace Elite” both resumed year-on-year growth in 24Q2. 2) Game revenue in the international market increased 9% year over year to RMB 13.9 billion, mainly due to the recovery in popularity of Supercell's games (“Wild Brawl”, etc.) and the strong performance of “PUBG MOBILE”.
Online advertising: Companies will benefit from freeing up more ad inventory. In 24Q2, the company's online advertising revenue was 29.9 billion yuan, a year-on-year increase of 19%. 1) In terms of the advertising system, the company upgraded the advertising technology platform to enable it to analyze user interests over a longer period of time and process user signals more frequently.
2) The company said it could benefit from freeing up more ad inventory (especially video numbers). With the development of internal circulation e-commerce, the company will benefit from a hybrid transformation of advertising within WeChat.
Fintech and corporate services: Under macroeconomic disruptions. In 24Q2, revenue from the fintech and corporate services business increased 4% year over year to 50.4 billion yuan. 1) The number of commercial payment transactions continued to grow at a healthy rate year over year, but the average value of each payment transaction declined year over year due to slow consumer spending.
2) There was a double-digit year-on-year increase in financial services; 3) Revenue from consumer loan services declined year-on-year, mainly due to the adoption of more prudent credit policies; 4) corporate service revenue increased by more than ten points over the same period last year.
Investment advice: On the revenue side, the company's advertising business and fintech business are affected at the macro level. However, the release of the company's advertising business inventory and technological upgrades are expected to bring resilience to advertising growth. The payment business, which accounts for most of the revenue in the fintech business, was affected at the macro level, but high-margin businesses such as financial management grew healthily. In addition to this, the continuous development of video e-commerce has also led to an increase in revenue from e-commerce advertisements and technical service fees.
On the profit side, the continued development of the company's high-quality business provides potential for a continuous increase in profits.
Considering that the company's gross margin is progressing well and that the profit release of affiliated companies and joint ventures is relatively good, we raised our profit forecast. The adjusted net profit for 24-26 is 221.8/249.9/275 billion yuan, an increase of 10%/10%/10%, continuing to maintain the “superior to the market” rating.