Tencent, Meituan, and PDD all released their financial reports this week, and the market is closely watching these numbers

This week, Chinese internet giants Tencent, Meituan, and PDD will successively release their financial reports for the fourth quarter of 2024. According to Goldman Sachs' forecast, thanks to the strong growth in consumer goods and services in China during the fourth quarter, Tencent, Meituan, and PDD are expected to perform robustly, with revenue growth of 8%, 19%, and 24% year-on-year, respectively, and adjusted EBIT (Earnings Before Interest and Taxes) expected to grow by 22%, 405%, and 11% year-on-year, respectively.

On March 17, Goldman Sachs analysts Ronald Keung, Lincoln Kong, and others released a research report stating that this season, investors are more focused on management's outlook for 2025 performance, particularly the expected adjustments to earnings per share (EPS), as the direction of EPS adjustments has been highly correlated with stock price performance so far this earnings season.

Goldman Sachs expects that PDD's Temu platform will continue to adjust its business model, while Meituan may continue to expand its "Keeta" delivery business in the Middle East. Investors will focus on three main areas:

Capital expenditures and application plans related to artificial intelligence, the competitive landscape of e-commerce and local life services, and changes in globalization strategies and the policy environment.

Tencent: Game business accelerates growth by 17%, EPS exceeds expectations with a growth of 14%

Since the last financial report was released, Tencent's stock price has risen by 29%. Goldman Sachs has given it a "Buy" rating and expects that in the fourth quarter of 2024, there will be a pattern of slightly slowing advertising revenue growth, accelerating growth in the gaming business, weak financial technology business, and accelerating commercial services:

Game revenue is expected to grow by 17%, advertising revenue by 12%, and adjusted group EBIT will reach 60 billion RMB, a year-on-year increase of 22%.

EPS for 2025 is expected to be slightly above the market consensus of 11%, with a year-on-year growth of 14%.

The report also pointed out several important focus areas for Tencent's earnings season:

1. Regarding AI and capital expenditures, as Tencent integrates DeepSeek R1 into WeChat AI search and may launch AI assistant features, and considering Tencent's share buybacks of approximately 103 billion RMB last year and the distribution of about 30-40 billion RMB in annual dividends, the report suggests that investors will pay attention to the capital expenditure levels for 2025 and the balance with shareholder returns.

2. In terms of growth prospects for the gaming business, Goldman Sachs expects that Tencent's classic games will maintain healthy growth, but due to the launch of mDnF in May last year, it will face a high base effect in the second half of the year. "Honor of Kings" and "Peacekeeper Elite" are expected to perform strongly during the 2025 Spring Festival, supporting game revenue growth in the first half of the year. Game revenue is expected to grow by 17% year-on-year in the fourth quarter of 2024, with a steady growth rate of 10% for the entire year of 2025.

3. Regarding advertising technology and e-commerce, as Tencent's advertising product 3.0 and the growing WeChat mini-stores will expand its advertising target market, Goldman Sachs expects online advertising revenue to grow by 13% year-on-year in the fourth quarter, accelerating to 15% in 2025

Meituan: Core Local Business Grows Strongly by 46%, Focus on GTV Profit Margin

For Meituan, Goldman Sachs has also given a "Buy" rating, expecting its core local business profit to achieve a strong year-on-year growth of 46% in the fourth quarter. Goldman Sachs forecasts that in the fourth quarter of 2024:

The transaction volume of the takeaway business will grow by 10% year-on-year, with food delivery and in-store, hotel, and tourism (IHT) EBIT at RMB 4.6 billion (31.6% profit margin), and group EBIT at RMB 9.5 billion.

Analysts believe that the market's focus is mainly on several aspects:

• First, investors will closely monitor Meituan's investment priorities in fresh retail (including "Meituan Grocery" and "Meituan Preferred"), Keeta, and artificial intelligence/robotics technology.

• Second is the unit economics of food delivery. Online marketing penetration, normalization of user subsidies, and rider social security costs are key factors affecting profitability. Goldman Sachs expects that by 2025, Meituan's food delivery platform GTV profit margin will remain around 3%.

• Finally, in the face of fierce competition, how Meituan maintains its position in GTV and content/merchant coverage is crucial. Goldman Sachs expects the adjusted EBIT for this sector to grow year-on-year by 37% in the fourth quarter of 2024 and by 26% in the fiscal year 2025.

PDD: Profit Growth Rate Will Slow to 11%, Temu Business Model Adjustment Draws Attention

Since the beginning of this year, PDD's stock price has risen by over 26%. Goldman Sachs expects PDD's EPS to grow by 5% in the fourth quarter of 2024, slightly below the market consensus of 12%:

It is expected that PDD's online marketing revenue will reach RMB 56.7 billion, a year-on-year increase of 17%; transaction commission revenue will be RMB 53.7 billion, a year-on-year increase of 34%; adjusted net profit will be RMB 28.4 billion, a year-on-year increase of 11%.

It is expected that PDD's profit growth rate in the fourth quarter will drop to 11% year-on-year (compared to 48% in the third quarter), but considering the significant revenue base brought by seasonal factors, the slowdown in monthly active users of Temu in the fourth quarter, and limited expansion in the domestic appliance market, this means that absolute profit will slightly rebound.

Core issues of concern for investors include:

1. Temu business model adjustment: How Temu adjusts its business model to enhance platform resilience in the face of various countries' minimization threshold policies and tariff changes, especially the progress of the business model transformation in the U.S.

2. Platform GMV growth momentum: How PDD maintains growth and sustains commission rates in the face of accelerated growth from competitors and the presence of new entrants

3. Shareholder return policy: Given its strong free cash flow generation capability, the market expects PDD to possibly further increase shareholder returns.

Goldman Sachs expects that starting from the second half of 2025, PDD will benefit from the low base effect brought by merchant support measures since August last year, and profitability is expected to improve