Tencent Holdings Q2 2025 Earnings Call Summary Industry and Company Overview - The document discusses Tencent Holdings, a leading technology and entertainment company in China, focusing on its performance in the second quarter of 2025. Key Points and Arguments Financial Performance - Tencent reported a 0% revenue growth year-over-year for Q2 2025, with a notable 15% increase in overall revenue compared to the previous year and a 2% increase quarter-over-quarter [2][3] - Non-GAAP profit increased by 10% year-over-year, with core operating performance growth exceeding 20% when excluding investment impacts [3] Gaming Business - The gaming segment saw a 22% year-over-year growth, with domestic growth at 17% and international growth at 35% [2][4] - Key drivers included the success of "Delta Force," which surpassed 20 million active users, and updates to "Clash Royale" from Supercell, leading to record revenue [4] - New game "Star Dune" contributed significantly to revenue, and updates to the mixed Yuan model aimed to enhance large language model quality and multi-modal interactions [4][11] Advertising Business - Advertising revenue grew by 20% year-over-year, primarily driven by an increase in CPM (cost per thousand impressions) rather than ad display volume [2][6] - The share of revenue from video ads continued to rise, with AI enhancements improving click-through rates, exposure, and creative generation, thereby facilitating e-commerce transactions [6][7] Impact of AI Technology - AI technology has positively influenced both advertising and gaming sectors by enhancing ad effectiveness and optimizing user experience [7] - The integration of AI is expected to continue driving revenue growth, particularly in advertising, where it has been validated as a lucrative area for monetization [7] Capital Expenditure - Tencent's capital expenditure reached 19 billion yuan in 2025, reflecting over a threefold increase year-over-year, although it slightly decreased quarter-over-quarter due to H20 chip procurement [2][8] - The capital expenditure as a percentage of total revenue was 10% for Q2, with expectations for an increase in the second half of the year [9] AI Native Applications - Tencent is advancing its AI native applications, having released a deep report on Tencent AI agent, with plans for increased promotion in the latter half of the year [2][10] - Current innovative products like IMA are in early exploration stages, with user growth for the Yuanbao product slowing down due to previous high-impact changes [10] Future Growth Prospects - The gaming business is expected to maintain strong performance, with advertising growth projected around 20% [4][12] - Tencent's valuation remains relatively low at 18 times core profit, compared to 20-25 times for other gaming companies, suggesting a favorable long-term investment outlook [12][13] Investment Opportunities - Concerns regarding high base effects from the previous year are deemed manageable, with further insights expected in upcoming discussions about technological equity and AI developments [14]