Goldman Sachs comments on Tencent's financial report: Exceeds expectations! The market will focus on AI applications

Goldman Sachs interprets Tencent's performance, expecting the market to focus on Tencent's AI application progress and capital expenditure plans.

On Wednesday, Tencent Holdings released its 2024 full-year performance report, with revenue and profit exceeding market expectations, and capital expenditure soaring 221% year-on-year to a record high.

Goldman Sachs' Asia research team, including Ronald Keung and Lincoln Kong, released a research report on the same day stating that Tencent has returned to double-digit revenue growth, mainly due to the strong performance of its classic gaming business and AI-driven advertising revenue growth; the earnings per share beat expectations primarily driven by a significant year-on-year increase in profits from joint ventures.

The report emphasizes that Tencent's better-than-expected performance is mainly attributed to strong growth in gaming and advertising businesses, as well as a significant increase in investments in AI-related fields. It is expected that Tencent will continue to benefit from the WeChat ecosystem, global gaming assets, and the application of AI technology in the future.

In the report, Goldman Sachs particularly highlighted Tencent's investment in the AI field. The financial report shows that Tencent's capital expenditure reached RMB 37 billion in the fourth quarter of 2024, surpassing Alibaba's level during the same period. The total capital expenditure for the fiscal year 2024 reached RMB 77 billion, compared to only RMB 24 billion in the fiscal year 2023.

Tencent's management expects that in 2025, Tencent's capital expenditure will account for a low double-digit percentage of revenue (12% in 2024). Goldman Sachs believes that these investments will be used to improve the productivity of the advertising business, extend the lifecycle of games, and accelerate user adoption of Tencent's AI applications and enterprise applications.

Market Focus: AI Applications, Gaming Prospects, Growth Potential of Mini Programs and Video Accounts

The report states that investors will focus on AI adoption and gaming growth in light of Tencent's statements during the conference call and future business developments.

The report notes that given the integration of the DeepSeek R1 model into WeChat AI search and the significant increase in capital expenditure in the fourth quarter, investors will closely monitor Tencent's progress in AI applications (including potential WeChat AI assistants) and the pace of investment and capital expenditure levels in 2025.

Regarding the gaming business, the report expects that Tencent's "evergreen games" will generally maintain healthy growth, but due to the launch of the mobile game "Dungeon & Fighter" in May last year, domestic games will face a high base effect in the second half of 2025.

As Tencent launches new advertising deployment 3.0, enhances engagement in video accounts, and develops e-commerce mini programs, investors will also pay attention to the further expansion of mini programs into shelf-style e-commerce products and the further growth potential of video account advertising, which will further expand the advertising market size of WeChat.

The report also adds:

"Tencent's WeChat ecosystem and global gaming assets, along with multiple monetization methods, will enable it to achieve compound growth in earnings throughout the macroeconomic cycle."