Tencent (00700) Q1 performance outlook: First quarter performance expected to be good. Investors are focusing on the development of AI intelligent bodies and the final profit model.

On May 14th, TENCENT (00700) will release its performance for the first quarter of 2025. Among overseas investment banks, Goldman Sachs currently predicts that Tencent's first-quarter performance will improve, with revenue and earnings per share expected to increase by 10% and 20% respectively year-on-year. Profit growth is expected to outpace revenue growth, mainly due to the rapid growth of high-profit businesses such as advertising and gaming, as well as operational leverage. Investors are expected to focus on the progress of marketing service revenue growth driven by advertising technology, the sustainability of the growth in gaming business in the second half of the year, the growth prospects of the financial technology business, and the development and ultimate profitability model of AI intelligent body. As for the full-year forecast, Goldman Sachs currently estimates that Tencent's revenue will increase by 10% year-on-year this year, and earnings per share are expected to increase by 14%. It is believed that Tencent, relying on its unique WeChat ecosystem and global gaming assets, has diversified profit channels and can achieve profit compound growth in the macro cycle. Goldman Sachs emphasized that Tencent remains one of the most recommended stocks by Goldman Sachs in the Chinese Internet industry. Credit Suisse predicts that Tencent's first-quarter performance will be stable, with revenue expected to increase by 10% year-on-year to 175.3 billion yuan, and adjusted pre-tax profit (EBIT) is expected to reach 67.3 billion yuan, an increase of 15% year-on-year, mainly benefited from the growth in gaming and advertising business, with gaming revenue expected to increase by 15.8% and online advertising revenue expected to increase by 17.4% year-on-year. Tencent strengthened its GPU purchases in the fourth quarter of last year, anticipating that the growth of cloud computing business in the second half of this year will accelerate. Credit Suisse believes that Tencent is relatively defensive in the face of tariff uncertainty and predicts that the company's revenue and profit compound annual growth rate over the next three years will reach double-digit percentage points and 15%-20%. Nomura expects Tencent's first quarter total revenue for the 2025 fiscal year to increase by 10% year-on-year to 176 billion yuan, in line with the latest market consensus; and that its non-IFRS operating profit will increase by 19% year-on-year to 70 billion yuan, exceeding market expectations by 4%. Nomura expects online advertising revenue at Tencent to increase by 19% year-on-year, mainly driven by video ads, with the revenue share possibly rising to over 20% of the advertising business. The bank expects Tencent's operating profit margin to increase by 2.8 percentage points to 39.6%, mainly supported by the continuous expansion of the gross profit margin; non-IFRS earnings per share forecast could increase by 29% year-on-year, outperforming the latest market estimates by 5%. Nomura also pointed out that Tencent's core business may remain stable, with online game revenue possibly increasing by 15% in the first quarter, benefiting from the strong performance of classic games such as "Honor of Kings," "Peacekeeper Elite," and "Wild Rift," as well as the contribution of newly released games such as "Dungeon & Fighter Mobile". Among domestic securities firms, for the first quarter of 2025, Guosen Securities expects Tencent's revenue to reach 176.5 billion yuan, an increase of 11% year-on-year. It is predicted that in the first quarter, steady revenue from online advertising, the release of advertising inventory, and AI; solid growth in the gaming business, and good performance of long-standing games; and the financial technology business will be affected by the macro environment but will recover compared to the previous quarter. Specifically: In terms of gaming, long-standing games are performing well. For the first quarter of 2025, Guosen Securities estimates that Tencent's online gaming revenue will reach 56.1 billion yuan, an increase of 17% year-on-year. It is expected that domestic gaming revenue will increase by 18% year-on-year. The revenue from old games is steadily increasing, and it is expected that "Peacekeeper Elite" will show good growth in revenue. New games are gradually becoming popular, and in April, the daily active users of "Delta Force" exceeded 12 million, with revenue steadily increasing. According to a net cafe heat map released by Shunwang, "Delta Force" ranked in the top 3 in February and March, surpassing "Crossfire" to become the second in the FPS race after "Fearless Covenant". In terms of advertising, rapid growth is maintained. For the first quarter of 2025, it is estimated that Tencent's online advertising revenue will reach 31.3 billion yuan, an increase of 18% year-on-year. The traffic of video ads is steadily increasing, more ad spots are being opened, and the current ad load rate is estimated to be at 4%. Advancements in advertising technology (AI, CPU to GPU conversion, etc.) continue to drive Tencent's advertising growth. For financial technology and enterprise services, there is a slight acceleration in revenue. For the first quarter of 2025, it is expected that revenue from financial technology and enterprise services will reach 55 billion yuan, an increase of 5% year-on-year. Breaking down Tencent's financial technology market, the main revenue comes from the payment business. (1) The payment business is related to the offline consumption market. According to the balance sheet of the monetary authorities released by the central bank, non-financial institutions' deposits (customer reserve deposits submitted to the central bank by payment institutions) increased by 24%/1%/3% year-on-year in January, February, and March, respectively. (2) Cloud business: With the appearance of Deepseek, the demand for external API calls, GPU usage, etc., is increasing. However, due to the company's current computing power mainly being used internally, in the fourth quarter of 2024, the company focused on chip procurement, leading to a delivery cycle. It is expected that faster growth in cloud business will be seen in the second quarter of 2025. For the first quarter of 2025, Guosen Securities predicts that Tencent will achieve a non-IFRS attributable net profit of 60.9 billion yuan, an increase of 21% year-on-year; and a non-IFRS attributable net profit margin of 34.5%. The impact of AI investment on gross profit and expenses: 1) On the cost side: The company will invest in AI based on business ROI, and AI-enabled businesses such as advertising are high-margin businesses. 2) On the expense side: This is mainly reflected in research and development expenses, with research and development expenses expected to grow by 20% in the first quarter of 2025, similar to the fourth quarter of 2024. The trend of adjusted operating profit (OP) > gross profit > revenue year-on-year growth rate is expected to continue this year, demonstrating operational leverage. Guosen points out that Tencent's performance is stable and has significant development potential. Businesses with significant long-term growth potential, such as WeChat e-commerce and AI Agent empowerment, are not included in the current profit forecast. The natural advantages of Tencent's ecosystem in terms of users and scenes still make Tencent one of the best-positioned companies for the AI era.