TENCENT(HK:00700) Hua Er Jie Jian Wen·2025-11-13 14:59Core Insights - Tencent's Q3 performance exceeded market expectations, driven by revenue growth in AI cloud services, with enterprise service revenue achieving double-digit growth year-on-year [1][2]. Financial Performance - Total revenue for Q3 reached 193 billion RMB, a 15% year-on-year increase. Gross profit was 109 billion RMB, up 22% year-on-year. Non-IFRS operating profit was 73 billion RMB, reflecting an 18% increase, while profit attributable to equity holders rose 18% to 71 billion RMB [5][8]. - Capital expenditure for Q3 was 12.98 billion RMB, down 24% year-on-year and over 32% quarter-on-quarter. The company expects 2025 capital expenditure to be lower than previous guidance but still higher than 2024 [2][18]. Business Segments - Value-added services accounted for 50% of total revenue, with social networks contributing 17%, domestic games 22%, and international games 11%. Marketing services made up 19%, while fintech and enterprise services contributed 30% [8][15]. - Domestic game revenue grew 15% year-on-year, driven by titles like "Delta Action" and "Honor of Kings." International game revenue surged 43% year-on-year, attributed to early revenue recognition from "Dying Light: Beast" and recent studio acquisitions [9][12]. AI and Cloud Services - The company is enhancing its AI capabilities, particularly in its mixed Yuan model architecture, which is expected to improve user engagement and competitive advantage in applications like WeChat [3][5]. - AI chip availability is a limiting factor for cloud business growth, with internal usage prioritized over external leasing. Without these supply constraints, cloud revenue could have grown faster [3][39]. Strategic Partnerships - Tencent is in discussions with Apple regarding a payment agreement for mini-games within WeChat, potentially reducing the commission from 30% to 15%. The company expresses constructive satisfaction with the progress made in these discussions [4][30]. Marketing and Advertising - Marketing services revenue grew 21% year-on-year to 36 billion RMB, supported by increased ad spending across major advertiser categories. The introduction of the AIMarketingPlus automated advertising solution is expected to enhance ROI for advertisers [14][22]. - The company is leveraging AI to improve ad targeting and engagement, contributing to a significant increase in eCPM and overall ad revenue growth [41].