Tencent Q1 Performance Outlook: The first quarter performance is expected to improve, and investors are focused on the development of AI intelligent entities and the final profit model

According to Zhitong Finance APP, on May 14, Tencent Holdings (00700) will announce its Q1 2025 performance. Among overseas investment banks, Goldman Sachs currently predicts that Tencent's first-quarter performance will be positive, with revenue and earnings per share expected to grow by 10% and 20% year-on-year, respectively. The profit growth rate is higher than revenue, mainly due to the rapid growth of high-margin businesses such as advertising and gaming, as well as operational leverage. It is expected that investors' focus will be on the progress of revenue growth driven by advertising technology, the sustainability of gaming business growth in the second half of the year, the growth prospects of the fintech business, and the development and eventual profit model of AI agents.

As for the full-year forecast, Goldman Sachs currently estimates that Tencent's revenue will grow by 10% year-on-year this year, with earnings per share expected to increase by 14%. They believe that Tencent, relying on its unique WeChat ecosystem and global gaming assets, has diversified profit channels and can achieve compound profit growth in the macro cycle. Goldman Sachs emphasizes that Tencent remains one of the most recommended stocks to buy in the Chinese internet industry.

Citi predicts that Tencent Holdings' first-quarter performance will be robust, with revenue expected to grow by 10% year-on-year to RMB 175.3 billion. Adjusted earnings before interest and taxes (EBIT) are expected to reach RMB 67.3 billion, a year-on-year increase of 15%, mainly benefiting from the growth of gaming and advertising businesses, with gaming revenue expected to grow by 15.8% and online advertising revenue expected to increase by 17.4% year-on-year.

Tencent strengthened its GPU procurement in the fourth quarter of last year, anticipating that its cloud computing business may accelerate growth in the second half of this year. Citi believes that in the face of tariff uncertainties, Tencent is relatively defensive, predicting that the company's revenue and profit compound annual growth rates over the next three years will reach double digits and 15% to 20%, respectively.

Nomura expects Tencent Holdings' total revenue for Q1 of the 2025 fiscal year to grow by 10% year-on-year to RMB 176 billion (the same below), consistent with the latest market consensus; its non-International Financial Reporting Standards (non-IFRS) operating profit is expected to increase by 19% year-on-year to RMB 70 billion, exceeding market expectations by 4%. Nomura anticipates that Tencent's online advertising revenue will rise by 19% year-on-year, mainly driven by video account advertising, with its revenue share potentially rising to over 20% of the advertising business.

The firm expects Tencent's operating profit margin to increase by 2.8 percentage points to 39.6%, mainly supported by continuous expansion of gross profit margin; non-IFRS earnings per share are expected to increase by 29% year-on-year, 5% higher than the latest market estimate. Nomura also noted that Tencent's core business may remain stable, with online gaming revenue expected to grow by 15% year-on-year in the first quarter, benefiting from the solid performance of classic games such as "Honor of Kings," "Peacekeeper Elite," and "Brawl Stars," as well as contributions from newly released games like "Dungeon & Fighter Mobile."

Among domestic brokerages, for Q1 2025, Guosen Securities expects Tencent to achieve revenue of RMB 176.5 billion, a year-on-year increase of 11%. It is expected that in the first quarter, the online advertising revenue will continue to benefit from the release of advertising inventory and AI; the gaming business will grow steadily, with evergreen games performing well; the fintech business will be affected by the macro environment but will recover on a quarter-on-quarter basis.Specifically:

In terms of gaming, Changqing Games performed well. In Q1 2025, GuoXin Securities expects Tencent's online gaming business revenue to be 56.1 billion yuan, a year-on-year increase of 17%. Domestic game revenue is expected to grow by 18% year-on-year. The old game base is steadily growing, with expectations for good revenue growth from "Peacekeeper Elite." New games are gradually becoming evergreen, with "Delta Force" surpassing 12 million daily active users in April, and revenue continues to rise. According to the internet cafe heat list released by Shunwang, "Delta Force" ranked in the Top 3 in February and March, surpassing "CrossFire" to become the second in the FPS track, only behind "Valorant."

In terms of advertising, it maintains rapid growth. In Q1 2025, Tencent's online advertising revenue is expected to be 31.3 billion yuan, a year-on-year increase of 18%. The traffic of video accounts is steadily growing, with more advertising slots being opened, and the current ad loading rate is expected to be at 4%. Improvements in advertising technology (AI, CPU to GPU, etc.) continue to drive Tencent's advertising growth.

In financial technology and enterprise services, revenue growth is slightly accelerating. In Q1 2025, revenue from financial technology and enterprise services is expected to be 55 billion yuan, a year-on-year increase of 5%. Breaking down Tencent's financial technology market, the main revenue comes from payment services. ① Payment services are related to the offline consumption market. According to the central bank's published balance sheet of monetary authorities, non-financial institution deposits (customer reserve deposits deposited by payment institutions with the central bank) grew by 24%/1%/3% year-on-year in January/February/March. ② Cloud business: With the emergence of Deepseek, the demand for external API calls and GPU usage has increased, but since the company's current computing power is mainly used internally, the company focused on chip procurement in Q4 2024, which has a delivery cycle, and faster cloud business growth is expected to be seen in Q2 2025.

In Q1 2025, GuoXin Securities expects Tencent to achieve a Non-IFRS net profit attributable to shareholders of 60.9 billion yuan, a year-on-year increase of 21%; Non-IFRS net profit margin of 34.5%. The impact of AI investment on gross profit and expenses: 1) Cost side: The company will invest in AI based on business ROI, and AI-enabled businesses such as advertising are inherently high-margin businesses. 2) Expense side: Mainly reflected in R&D expenses, with R&D expenses expected to grow by about 20%, similar to Q4 2024. This year, operational leverage continues to manifest, with adjusted operating profit (OP) > gross profit > revenue year-on-year growth rate trend confirmed.

GuoXin Securities pointed out that Tencent's performance is stable and contains significant growth potential, with long-term growth potential in businesses such as WeChat e-commerce explosion and AI Agent empowerment not included in the current profit forecast. The natural advantages of users + scenarios in Tencent's ecosystem still make Tencent one of the best-positioned companies in the AI era.