Tencent (00700) reported total revenue of 204.8 billion yuan in the second quarter, an increase of 11% year-on-year.

On August 12, TENCENT (00700) announced its unaudited consolidated performance for the second quarter ending June 30, 2026 (2Q2026). Chairman and CEO Ma Huateng stated, As we enter the third quarter of this year, we are building a completely new AI-enabled Tencent across three dimensions: intelligence, applications, and infrastructure, and we have made significant progress. In terms of intelligence, the official version of Hy3 offers users a widely usable model with excellent cost-effectiveness and lays the foundation for future advancements of the Hy series models to industry-leading levels. In terms of applications, the AI efficiency services WorkBuddy and the AI programming tool CodeBuddy have achieved breakthrough user growth and are leading in their respective fields within China. On the infrastructure front, we have significantly increased our computing power procurement, which will help us convert the usage of applications and models into revenue. Meanwhile, we further refined our existing businesses, with marketing service revenue continuing to grow, several new games performing exceptionally well, and rapid growth in viewership for WeChat video accounts. 2Q2026 Financial Summary Total revenue: Up 11% year-on-year, Gross profit: Up 13% year-on-year, Operating profit according to non-International Financial Reporting Standards: Up 9% year-on-year. Total revenue was RMB 204.8 billion, an increase of 11% compared to the second quarter of 2025 (year-on-year). Gross profit was RMB 118.4 billion, up 13% year-on-year. According to non-International Financial Reporting Standards, excluding certain one-time and/or non-cash items to reflect core business performance: According to International Financial Reporting Standards: - Operating profit was RMB 75.6 billion, up 9% year-on-year; operating profit margin decreased from 38% last year to 37%. - Excluding the contribution from new AI products, operating profit was RMB 86.1 billion, up 19% year-on-year; excluding new AI products, the operating profit margin increased from 39% last year to 42%. - Profit was RMB 70.6 billion, up 9% year-on-year. - Profit attributable to equity holders of the company was RMB 68.4 billion, up 9% year-on-year. - Basic earnings per share was RMB 7.581, and diluted earnings per share was RMB 7.433. Operating profit was RMB 67.3 billion, up 12% year-on-year; operating profit margin was 33%, unchanged from last year. Profit was RMB 58 billion, up 3% year-on-year. Profit attributable to equity holders of the company was RMB 56 billion, up 0.7% year-on-year. Basic earnings per share was RMB 6.207, and diluted earnings per share was RMB 6.104. Capital expenditure was RMB 52.8 billion, an increase of 176% year-on-year. Total cash was RMB 511.2 billion, up 9% year-on-year. Net cash was RMB 58.2 billion, down 22% year-on-year. The company generated operating cash flow of RMB 52.7 billion in 2Q2026. After deducting capital expenditure payments of RMB 59.3 billion, media content payments of RMB 5 billion, and lease liability payments of RMB 2.2 billion, free cash flow turned negative at RMB 13.8 billion. The operating cash flow of 2Q2026 included significant AI-related advance payments, which were intended to provide infrastructure to support the upgrade of the Hy model, the demands of WorkBuddy and CodeBuddy inference, WeChat AI initiatives, and the AI capability development of our various products and services, while also meeting the increasing demand for our cloud services from external clients. Excluding advance payments for computing power procurement, our free cash flow was RMB 37.6 billion. As of June 30, 2026, the fair value of our equity in listed investees (excluding subsidiaries) was RMB 487.2 billion, compared to a fair value of RMB 547.1 billion as of March 31, 2026. As of June 30, 2026, the book value of our equity in unlisted investees (excluding subsidiaries) was RMB 387.9 billion, compared to a book value of RMB 365.1 billion as of March 31, 2026. In 2Q2026, the company repurchased approximately 37.38 million shares at a total cost of approximately HKD 16.9 billion on the Hong Kong Stock Exchange. We released the official version of Hy3 in July 2026, significantly improving performance compared to the Hy3 preview version and outperforming most models of similar size. According to token consumption reported by OpenRouter, Hy3 has consistently ranked among the top three globally since its launch. WorkBuddy has achieved rapid user growth and strong user retention, with users showing a strong willingness to pay through subscriptions and token purchases. WorkBuddys market-leading position benefits from its powerful harnessing engineering capabilities, rich model selection, and industry-leading skill repository. In recent weeks, we launched a limited gray-scale test of the AI agent Xiaowei within WeChat. Xiaowei is powered by the customized model WeLM, which focuses on user privacy, WeChat scenarios, and inference efficiency. The total user viewing time on video accounts in 2Q2026 increased by over 20% year-on-year, benefiting from increasingly rich content aimed at young users, upgrades to interactive features, and a new content mixing system. The average daily active accounts for local evergreen games Delta Action and Valorant reached a new high in 2Q2026. King of Rock: World ranked first in both average daily active accounts and total revenue among all new mobile games released in the Chinese market this year. Miniclip achieved breakthrough success in international markets, with Arrows Puzzle Escape becoming the highest downloaded mobile game globally in 2Q2026 and generating strong in-app advertising revenue. We upgraded the intelligent advertising product matrix Tencent Marketing AIM+, providing AI-driven end-to-end delivery capabilities for WeChat mini-shops and short-form advertisers. This article is reproduced from Tencent Technology, GMTEight edited by Li Fo.