Summary of Key Points from the Conference Call Industry Overview - The internet sector in China is expected to enter a new phase in 2025, driven by recent government policy support measures and improving consumer sentiment [1][2][33] - A basket of 18 stocks across various sub-sectors is recommended for investors, indicating a diversified investment approach [1][16][53] Core Insights Ecommerce - Consumer sentiment is crucial for the recovery of the ecommerce sector, with a projected focus on user growth and monetization strategies [3][34][58] - Alibaba (BABA) is expected to benefit from the ramp-up of Quanzhantui (QZT) and new product monetization, with a positive FY26 outlook [3][34] - JD's strategies on user growth and supply chain capabilities are anticipated to remain effective, while PDD's profitability outlook will be closely monitored [3][34] - The online shopping GMV for physical goods increased by 8% YoY in 8M2024, with food and beverages up 19% YoY [58] Entertainment - High-quality games are essential for success in the online gaming sector, with Tencent's key titles consistently ranking in the top positions for iOS game grossing [4][38] - NetEase is expected to see market anticipation for the mobile version of "Where Winds Meet," which could act as a share price catalyst [4][38] Online Advertising - The online advertising industry is projected to grow, with major platforms like Tencent, BABA, and Baidu expected to maintain their market shares [5][40] - AI technology is anticipated to enhance advertising capabilities, improving user experience and conversion rates [5][40] Verticals - The travel sector is viewed as a preferred vertical, with companies like TCOM expected to gain market share in domestic and outbound travel [12][41] - BEKE is expected to benefit from government support measures in online property transactions [12][41] Logistics - The logistics industry is expected to see parcel volume growth driven by recovering consumer sentiment, with ZTO and JDL positioned for strong performance [13][42][45] Cloud Computing - Alibaba, Baidu, and Tencent are expected to see significant growth in cloud revenue, particularly from AI migration [14][49] Fintech - Loan volume growth is anticipated to benefit from a recovery in consumer sentiment, with a focus on high-quality borrowers [15][47] Additional Insights - The report emphasizes the importance of different valuation methodologies across sub-sectors, with online shopping currently trading at the low end of sector valuation [51] - Capital return strategies, including share repurchase programs by Tencent and BABA, are highlighted as key areas of interest for investors [52] Conclusion - The internet sector in China is poised for a recovery in 2025, with various sub-sectors showing potential for growth driven by consumer sentiment, government support, and technological advancements [1][2][33][36]

Core Viewpoint - Tencent is expected to report first-quarter 2025 earnings on May 13, with earnings estimated at 88 cents per share, reflecting an 18.92% year-over-year growth, and revenues projected at $24.26 billion, indicating an 8.89% year-over-year increase [1]. Group 1: Earnings Performance - Tencent has surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average surprise of 11.65% [2]. - The upcoming earnings report is anticipated to reflect the impact of various ongoing initiatives across gaming, advertising, fintech, and AI infrastructure [3]. Group 2: Gaming Sector - The domestic gaming sector is expected to show continued momentum from Q4 2024, supported by popular titles such as Honor of Kings and contributions from new releases like DnF Mobile and Delta Force [4]. - All five of Tencent's highest-grossing games recorded year-over-year daily active user increases during the 2025 Spring Festival, indicating sustained user engagement [4]. - Deferred revenue, which grew by a high-teens percentage year-over-year in 2024, is expected to positively impact the top line for the quarter [4]. Group 3: Advertising Services - Marketing services revenues increased by 17% year-over-year in Q4 2024, driven by AI enhancements and strong demand from various sectors including e-commerce and healthcare [5]. - Video Accounts Marketing Services revenues grew over 60% year-over-year, while Weixin Search ad revenue more than doubled, suggesting continued advertising growth [5]. Group 4: FinTech Sector - In the fintech segment, commercial payment revenues were flat year-over-year in the previous quarter, with transaction volumes rising but average selling prices under pressure [6]. - This trend is expected to continue in Q1 2025, with improving consumer demand but ongoing supply-side pricing pressures [6]. Group 5: AI Development - The AI-native application Yuanbao saw a 20-fold increase in daily active users from February to March, although revenue impact in Q1 is expected to be limited due to GPU supply constraints [7]. - Tencent significantly increased its investment in AI development in Q4 2024, with a 21% year-over-year rise in R&D expenses and a 421% increase in capital expenditures [8]. - The company plans to further boost R&D spending and capital expenditures in 2025 to enhance AI infrastructure and model development [8].

Tencent 4Q24 Earnings Call Summary Company Overview - **Company**: Tencent (0700.HK) - **Date of Report**: March 19, 2025 - **Quarter**: 4Q24 Key Highlights Financial Performance - **Adjusted EPS**: Beat JP Morgan estimates and consensus by 7% and 8% respectively [1] - **Revenue**: Reported at RMB 172.446 billion, a 2% increase YoY and 11% increase QoQ [7] - **Net Income**: Increased by 17% YoY to RMB 51.324 billion, with a non-IFRS net income of RMB 55.312 billion, up 4% YoY [7] - **Operating Profit**: Adjusted operating profit was RMB 59.475 billion, reflecting a 21% increase YoY [7] Capital Expenditures - **Capex**: Reported at RMB 37 billion, a significant increase of 386% YoY and 114% QoQ [6] - **AI Investments**: The company has reorganized its AI team and increased capital expenditures related to AI, indicating a strong focus on product innovation and model research [6] Revenue Segments - **Online Games**: Revenue growth accelerated to 20% YoY, driven by domestic games which grew by 23% [6] - **Advertising Revenue**: Grew by 17% YoY, maintaining the same growth rate as the previous quarter, with strong demand for Video Accounts and Weixin search [6] - **Fintech and Business Services**: Revenue remained stable with a slight increase of 3% YoY [8] Share Repurchase - **Share Buyback**: Tencent plans to repurchase at least HK$80 billion worth of shares in 2025, compared to HK$112 billion in 2024 [6] Future Outlook - **Earnings Estimates**: Anticipated upward revisions to consensus earnings estimates following the earnings announcement [3] - **Long-term Growth**: Positive long-term earnings growth sustainability is expected, with advertising and e-commerce identified as key growth drivers [9] Risks and Challenges - **Regulatory Risks**: Potential for further regulatory tightening in the gaming sector [11] - **Economic Slowdown**: A continued slowdown in the macro economy could impact performance [11] - **Investment Pressures**: Higher-than-expected investments in new initiatives may lead to margin pressure [11] Valuation - **Price Target**: Set at HK$520, based on an 18x 2025E P/E, which is at the low end of the historical range [10] Conclusion - Tencent's 4Q24 results indicate strong performance across various segments, particularly in online gaming and advertising. The company's significant investment in AI and plans for share repurchase reflect a commitment to long-term growth. However, potential regulatory challenges and economic factors pose risks to future performance.