Release Date: March 19, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tencent Holdings Ltd (TCEHY, Financial) reported a strong financial performance with total revenue of RMB172 billion, up 11% year-on-year, and gross profit of RMB91 billion, up 17% year-on-year.
- The company's AI initiatives, particularly the Hunyuan foundation model, have shown significant progress, contributing to both consumer and enterprise-facing services.
- Tencent's marketing services revenue grew by 20% in 2024, outperforming the industry, driven by AI-powered advertising technology and increased user traffic.
- The company has demonstrated strong shareholder returns, paying out HKD32 billion in cash dividends and repurchasing HKD112 billion worth of shares during the year.
- Tencent's gaming segment showed robust growth, with domestic games revenue increasing by 23% year-on-year, supported by the success of evergreen games and new releases.
Negative Points
- Increased CapEx spending on AI, particularly on GPUs, has led to a significant rise in operating expenses, impacting free cash flow, which was down 87% year-on-year.
- The company's commercial payments segment faced pricing pressure, resulting in flat revenue growth despite an increase in transaction volumes.
- Tencent's cloud services revenue growth was constrained due to the allocation of GPUs for internal use, limiting the provision of GPUs to external clients.
- The company anticipates potential margin pressure from increased R&D expenses and depreciation related to AI investments.
- Despite strong revenue growth, the net cash position decreased by 20% quarter-on-quarter, reflecting cash outflows related to CapEx and share repurchases.
Q & A Highlights
Q: How will Tencent balance growth and profitability with increased AI CapEx impacting financials?
A: James Mitchell, Chief Strategy Officer, explained that while increased R&D spending on AI is not seen as a pressure on margins, CapEx is more nuanced. The CapEx is primarily for GPUs supporting ad tech and games, which generate high returns. The company is optimistic about continuing to grow the business while protecting margins, despite the step-up in CapEx.
Q: What are Tencent's strategies for growing the user base of Yuanbao in a competitive market?
A: Chi Ping Lau, President, stated that Yuanbao will evolve into a capable AI assistant with various functionalities. Tencent's unique advantage lies in its access to high-quality content ecosystems and a multi-model strategy that provides users with the best model combinations to fulfill complex needs.
Q: How does Tencent view the future of AI search and its monetization?
A: James Mitchell noted that AI search could potentially subsume traditional search due to its efficiency and transactional capabilities. Monetization may start with performance advertising in China, followed by value-added services, similar to trends observed in the Western world.
Q: What is Tencent's outlook for advertising growth in 2025, considering AI enhancements?
A: James Mitchell highlighted that the advertising growth in Q4 was broad-based across industries, driven by AI enhancements. While Tencent is cautious about ad load increases compared to global peers, it remains optimistic about continued growth, provided the macro environment remains stable.
Q: How does Tencent plan to allocate capital between dividends, share buybacks, and AI investments?
A: Chi Ping Lau emphasized that Tencent aims to balance current period returns with future investments. The company plans to pay HKD41 billion in dividends and buy back HKD80 billion in shares in 2025, while maintaining flexibility to invest further in AI if needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
