Seeking Alphaยท2024-04-02 06:21Core Viewpoint - Tencent Holdings Limited is positioned as a promising growth investment for FY 2024, having returned to double-digit top-line growth in FY 2023, with an accelerating online advertising business [1][8]. Financial Performance - Tencent achieved 10% top-line growth in FY 2023, with total revenues of 609.0 billion Chinese Yuan ($86.0 billion) [4]. - The value-added service segment, including social media and gaming, saw only 4% growth, indicating market maturity [4]. - The Fintech business grew by 15% in FY 2023, while the online advertising business led with a remarkable 23% year-over-year growth, generating revenues of 101.5 billion Chinese Yuan ($14.3 billion) [5][4]. User Base and Market Position - WeChat, Tencent's flagship social media app, had 1.34 billion users by the end of FY 2023, maintaining its status as the largest social media platform in China, although user growth has normalized to 2% year-over-year [6][4]. - The online advertising growth was particularly driven by sectors such as internet services, healthcare, and consumer goods [5]. Cash Flow and Valuation - Tencent generated 167.0 billion Chinese Yuan ($23.6 billion) in free cash flow in FY 2024, reflecting an 89% year-over-year increase and a free cash flow margin of 27.4% [11][12]. - The company is trading at a price-to-earnings ratio of 12X, significantly lower than Meta Platforms' 21X, while also expected to grow its EPS at a faster rate of 17% compared to Meta's 12% [13]. Growth Potential - Given the rebound in fundamentals, strength in digital advertising, and substantial free cash flow, Tencent is believed to have considerable growth potential in FY 2024 and beyond [15][1].