Welcoming a new round of expansion cycle.
Author | Huang YuEdited | Zhou Zhiyu
After heavily investing in AI, TENCENT achieved a strong performance in 2025.
On May 14, TENCENT (00700.HK) released its first quarter Earnings Reports for 2025, showing revenue of 180.02 billion yuan, a year-on-year increase of 13%; Non-IFRS net income attributable to shareholders was 61.329 billion yuan, a year-on-year increase of 22%.
While both revenue and non-standard net income attributable to shareholders exceeded market expectations, revenue achieved double-digit growth, and the gap in growth rates between revenue and non-standard net income narrowed.
It is important to know that from the fourth quarter of 2023 to the third quarter of 2024, TENCENT's quarterly revenue growth rate was below 10%, rebounding to 11% in the fourth quarter of last year; moreover, in the past seven consecutive quarters, the growth rate of TENCENT's non-standard net income attributable to shareholders has exceeded 30%.
Now, while revenue growth has increased, the growth rate of non-standard net income attributable to shareholders has slowed down, reflecting to some extent that after the "convergence and focus" over the past two to three years, driven by AI, TENCENT has entered a new round of expansion cycle.
The Earnings Reports contain more signals confirming this shift.
From the financial data, in the first quarter of this year, TENCENT's capital expenditure reached 27.48 billion yuan, a year-on-year increase of 91%, accounting for 15% of revenue; additionally, TENCENT's general and administrative expenses grew by 36% year-on-year to 33.6 billion yuan, with this increase mainly coming from R&D expenses related to increased AI-related business, aside from a 4 billion yuan overseas acquisition.
Furthermore, due to the promotion of its native AI APP Yuanbao, TENCENT's investment in the first quarter was considerable, leading to a year-on-year growth of 4% in sales and marketing expenses to 7.9 billion yuan, which is after a reduction in advertising spending compared to the same period last year related to new game releases.
Notably, as of the end of the first quarter of this year, TENCENT's workforce also increased by 4627 year-on-year, bringing the total headcount to 109,414.
TENCENT's commitment to investing in AI is evident.
At the Earnings Conference in March, TENCENT announced that it would further increase capital expenditure by 2025, building on last year's record high capital expenditure of 76.7 billion yuan, and will continue to invest in self-developed models in R&D while accelerating AI application development across various business groups. At the same time, TENCENT will also invest in marketing to enhance user awareness and adoption of new AI products, such as Yuanbao.
To emerge as a leader in the AI arms race, TENCENT will also need to recruit more AI talent. On April 17, TENCENT announced the launch of the largest employment plan in history, which will create 28,000 new internship positions over three years with an increased rate of conversion to employment, with 10,000 new interns from campus recruitment in 2025, 60% of whom will be targeted at technical talents.
TENCENT stated that against the backdrop of accelerating the implementation of large models, it has increased its recruitment efforts in technical positions such as AI, Big Data, Cloud Computing, game engines, and digital content, with unprecedented expansion in technical recruitment.
Ma Huateng, Chairman of the Board of Directors and CEO of TENCENT, stated: "We believe that during the investment phase of the AI strategy, the operational leverage provided by existing high-quality revenue will help absorb the additional costs associated with these AI investments and maintain financial stability."
At the same time, Ma Huateng pointed out that in the first quarter of this year, AI capabilities have already made substantial contributions to business areas such as performance advertising and evergreen games.
As TENCENT's pillar business, game revenue in the first quarter grew by 24% overall, achieving the highest growth rate in nearly three years, with the domestic market relying on the sustained vitality of leading products like Honor of Kings and Peacekeeper Elite, combined with new growth from titles like Delta Force, resulting in a year-on-year revenue increase of 24% to 42.9 billion yuan; international revenue grew by 23% year-on-year to 16.6 billion yuan.
At the Earnings Conference that day, TENCENT's management stated that an important factor in driving the long-term growth of the gaming business is the application of AI technology, especially in large competitive multiplayer games, where the role of AI is particularly prominent. The integration of AI and gaming is something TENCENT has always aimed to achieve, and while deploying AI in large competitive games is still in its early stages, TENCENT will continue to pursue this path.
In addition, TENCENT's advertising revenue grew by 20% year-on-year to 31.9 billion yuan in the first quarter of this year, achieving double-digit growth for the tenth consecutive quarter. This growth is attributed to ongoing AI upgrades of the advertising platform, increased user engagement, and the optimization of the WeChat transaction ecosystem.
In TENCENT's AI strategy, the yuanbao (a type of digital currency) holds significant importance, serving as the pioneer for TENCENT's efforts to seize the next generation of super traffic.
To promote yuanbao, in addition to increasing investment flow, TENCENT has also actively directed traffic to yuanbao through TENCENT's product ecosystem, including WeChat, and last month added yuanbao as a contact in WeChat.
The TENCENT management pointed out that in the future, the association between the WeChat ecosystem and the Yuanbao chat assistant will definitely be gradually strengthened, and different practices will be carried out. Perhaps in a few quarters, they will be able to systematically report back to everyone.
In addition to AI, WeChat e-commerce is also seen as an important driver of TENCENT's future performance growth.
Since the beginning of this year, TENCENT has activated the WeChat e-commerce ecosystem. Video account storefront influencers can be upgraded to 'WeChat small store sellers', achieving full-domain sales; the WeChat small store function continues to improve, launching new scenarios such as friend circle sharing and red envelope lotteries, while also providing more support for merchants to settle in, expanding the brand commodity library and contributing to rapid year-on-year growth in transaction volume.
On the same day that the first quarter Earnings Reports were released, news broke that the WeChat business group announced the establishment of an e-commerce division. According to information from Wall Street, the newly established e-commerce division will explore trading models within WeChat, accelerate the development of transaction Infrastructure and trading ecology, and operate new trading models for WeChat.
However, TENCENT management stated that the previous WeChat e-commerce team was incubated in the open platform department. As the team's scale expanded, it was officially made independent, with no changes to management, still led by the original manager. Therefore, this adjustment is merely an organizational restructuring, and does not represent a significant change in business direction or strategy.
Although TENCENT places great importance on the e-commerce business, it is also very patient with WeChat e-commerce, believing that this is a very long-term project that requires a long runway.
In this race of the AI era, TENCENT has made a good start.
Hua Chuang Securities pointed out that they are Bullish on Tencent's top-down push for AI transformation of products in 2025, which will bring innovation in user experience and open up incremental commercialization space, driving valuation increases, giving Tencent a Target Price of 544-604.45 Hong Kong dollars for 2025.
In fact, since the beginning of the year, Hong Kong stock technology stocks have performed brilliantly. Among them, the price of TENCENT shares has continued to rise, breaking through the 500 Hong Kong dollar mark, with an increase of nearly 25% year-to-date. As of the close on May 14, the price of TENCENT shares was about 521 Hong Kong dollars per share, with a total Market Cap of about 4.79 trillion Hong Kong dollars.
After two years of convergence and focus, TENCENT has begun a new round of cautious expansion. Based on the traffic advantages established in the era of the Internet, whether TENCENT can return to its previous peak Market Cap of over 7 trillion Hong Kong dollars will still take time to answer.
