Tencent’s Earnings Call Highlights Robust Growth and AI Focus

Tencent Hldgs ((TCEHY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Tencent’s latest earnings call revealed a strong financial performance, marked by significant growth in revenue, profit, and AI initiatives. The company showcased notable achievements in its gaming, music, and marketing services sectors. Despite challenges such as increased capital expenditures impacting free cash flow and supply constraints in AI services, the overall sentiment remains positive due to Tencent’s robust growth and strategic advancements.

Strong Financial Performance in Q4 2024

Tencent reported a total revenue of RMB172 billion for the fourth quarter, reflecting an 11% year-on-year increase. The company’s gross profit reached RMB91 billion, up 17% year-on-year. Non-IFRS operating profit saw a 21% increase to RMB59 billion, while non-IFRS net profit attributable to equity holders rose by 30% to RMB55 billion. These figures underscore Tencent’s solid financial footing and its ability to generate substantial shareholder value.

Successful AI Initiatives and Growth

Tencent made significant strides in advancing its AI capabilities, particularly through the development of HunYuan. The integration of AI across its businesses led to notable growth in Yuanbao, which became the third highest AI-native mobile application in China by daily active users. These advancements highlight Tencent’s commitment to leveraging AI for business growth and innovation.

Record-Breaking Achievements in Games and Music

Tencent’s domestic games revenue grew by 23% year-on-year, while international games revenue increased by 15%. The company’s music segment also saw impressive growth, with Tencent Music subscribers reaching 121 million and music subscription revenue rising by 18%. These achievements underscore Tencent’s strong position in the entertainment sector.

Marketing Services Revenue Growth

The marketing services segment experienced a 17% growth in revenue, totaling RMB35 billion in Q4 2024. This growth was driven by AI enhancements, with Video Accounts marketing services revenue growing over 60% year-on-year. Tencent’s ability to capitalize on AI-driven marketing solutions has been a key driver of its revenue growth.

Significant Shareholder Returns

Tencent demonstrated its commitment to returning value to shareholders by paying HKD32 billion in cash dividends and repurchasing HKD112 billion worth of shares during the year. These actions reflect the company’s strong financial health and its focus on enhancing shareholder value.

Increased CapEx and Reduced Free Cash Flow

The company’s operating capital expenditures surged to RMB34.9 billion, up 421% year-on-year, primarily due to investments in AI capabilities. This significant increase in CapEx led to an 87% reduction in free cash flow, highlighting the financial impact of Tencent’s strategic investments.

Supply Constraints in AI Services

While demand for AI services was robust, supply constraints limited Tencent’s ability to fully capture this demand, primarily due to delayed GPU deployment. This challenge underscores the importance of addressing supply chain issues to meet growing market needs.

Flat Growth in Commercial Payments

Commercial payment revenue remained largely stable year-on-year, with ongoing pricing pressure despite increased transaction volumes. This flat growth indicates the competitive nature of the payments sector and the challenges in maintaining revenue growth.

Forward-Looking Guidance

Looking ahead, Tencent plans to continue its investments in AI, aiming for further growth and innovation while balancing shareholder returns. The company highlighted its strategic focus on advancing AI capabilities and maintaining robust financial performance. With a total revenue of RMB172 billion for the fourth quarter and significant investments in AI, Tencent is well-positioned for future growth.

In conclusion, Tencent’s earnings call painted a positive picture of the company’s financial health and strategic direction. Despite challenges such as increased CapEx and supply constraints, Tencent’s strong performance in gaming, music, and marketing services, coupled with its successful AI initiatives, positions the company for continued success. Investors and stakeholders can remain optimistic about Tencent’s future prospects.