2025-05-18 14:09Summary of Tencent Holdings 1Q25 Earnings Call Company Overview - Company: Tencent Holdings - Industry: Internet Services - Date of Report: 15 May 2025 Key Financial Highlights - 1Q25 Performance: - Revenue increased by 13% YoY, exceeding expectations - Adjusted Operating Profit (OP) and Net Profit (NP) grew by 18% and 22% YoY, respectively, both beating estimates by 4% due to Gross Profit Margin (GPM) expansion [2][11] Core Business Segments 1. Gaming: - Near Term: 1Q25 saw robust growth exceeding 20% from existing and new games, alleviating concerns about tougher comparisons in 2H25 - Notable performances from games like HoK and CrossFire, with CrossFire becoming the 3rd largest mobile game in China - Projected revenue growth of +14% for domestic games and +22% for international games in 2025E [3] 2. Advertising: - Near Term: Advertising revenue grew by 20% in 1Q25, driven by enhancements in ad technology and increased inventory - Anticipated to outpace industry growth of 17% in 2025E [4] 3. Mini Shops: - Near Term: Strong GMV growth due to accelerating merchant onboarding - Long-term potential compared to Mini Programs' GMV of Rmb8 trillion in 2024, with Mini Shops projected at cRmb200 billion [5] 4. AI Monetization: - Near Term: Management optimistic about navigating GPU supply issues - Long-term plans include adding AI features to products like Weixin, leveraging a user base of 1.4 billion with an average engagement of 1.5 hours daily [6] Margin and Profitability Outlook - 1Q25 Margin: Adjusted NP growth of 18% against 13% revenue growth - Management expects positive operating leverage and incremental AI revenue to support margins [11] Valuation and Price Target - Price Target: Increased to HK$710.00 from HK$700.00 - Current Price: HK$521.00 as of 14 May 2025 - Market Cap: HK$4,837 billion (approximately US$620 billion) [7][13] Earnings Estimates - 2025E: Revenue projected at Rmb742.8 billion, with adjusted NP expected to grow by 19% [15] Investment Thesis - Tencent's results provide enhanced clarity regarding earnings amidst macro uncertainties - Management emphasizes a "long runway" for growth across various business lines, including gaming, advertising, e-commerce, and AI monetization - Despite premium valuation, Tencent offers high earnings visibility and growth potential [12] Risks - Key risks include competitive landscape changes, execution of new business strategies, integration of investments, rising operational costs, and regulatory challenges [19] Conclusion - Tencent Holdings demonstrates strong growth across its core segments, with a positive outlook for future earnings driven by strategic initiatives in gaming, advertising, and AI. The company maintains a "Buy" rating with a revised price target reflecting its growth potential and market position.