Tencent Holdings Q1 revenue increased by 13% year-on-year, net profit decreased by 7%, AI-driven Honor of Kings and other revenues hit a record high | Financial Report Insights
In the first quarter, Tencent's revenue was 180.022 billion yuan, a year-on-year increase of 13%, and adjusted net profit increased by 11% year-on-year. AI capabilities have made positive contributions to performance advertising, evergreen games, and other businesses, with "Honor of Kings" and "Crossfire Mobile" achieving record high revenues. The company has increased its investment in "Yuanbao applications" and AI within WeChat
Tencent's revenue in the first quarter reached RMB 180.022 billion, a year-on-year increase of 13%. AI capabilities have made positive contributions to performance advertising, evergreen games, and other businesses, with "Honor of Kings" and "Crossfire Mobile" achieving record high revenues. The company spent RMB 23 billion on capital expenditures in the first quarter, mainly to support the development of AI-related businesses.
On May 14, Tencent Holdings announced its Q1 financial report:
- Tencent Holdings' revenue in the first quarter was RMB 180.02 billion, estimated at RMB 175.6 billion, a year-on-year increase of 13% and a quarter-on-quarter increase of 4%;
- Net profit was RMB 47.82 billion, estimated at RMB 51.69 billion, a year-on-year decrease of 7%;
- Adjusted net profit was RMB 61.33 billion, estimated at RMB 59.68 billion, a year-on-year increase of 11%;
- Operating profit was RMB 57.57 billion, estimated at RMB 59.2 billion, a year-on-year increase of 12%;
- Gross profit margin was 56%, an increase of 3 percentage points year-on-year.
Tencent Holdings announced that AI capabilities have made substantial contributions to performance advertising and evergreen games:
"We have also increased our investment in new AI opportunities such as Yuanbao applications and AI within WeChat. We believe that during the investment phase of our AI strategy, the operational leverage brought by existing high-quality revenue will help absorb the additional costs generated by these AI-related investments, maintaining financial stability. We expect these strategic AI investments to create value for users and society and generate long-term, substantial incremental returns for us."
Core Business: Diverse Engines Driving Growth
Value-Added Services: Revenue was RMB 92.133 billion, a year-on-year increase of 17%. Among them, domestic market game revenue grew by 24% (benefiting from "Honor of Kings," "Peacekeeper Elite," and contributions from new games), international market game revenue grew by 23%, and social network revenue grew by 7% (growth in virtual goods sales, music paid memberships, and mini-game platform service fees).
Marketing Services (Advertising): Revenue was RMB 31.853 billion, a year-on-year increase of 20%, mainly benefiting from strong demand for advertising inventory from video accounts, mini-programs, and WeChat search.
Financial Technology and Enterprise Services: Revenue was RMB 54.907 billion, a year-on-year increase of 5%, with financial technology services benefiting from growth in consumer loans and wealth management services, while enterprise services benefited from growth in cloud services and merchant technology service fees.
The company stated that in the first quarter, domestic market game revenue was RMB 42.9 billion, a year-on-year increase of 24% compared to the low base of the same period last year, benefiting from revenue growth from "Honor of Kings" and "Peacekeeper Elite," as well as contributions from the recently released "Dungeon & Fighter: Origin" and "Delta Force." International market game revenue reached RMB 16.6 billion, a year-on-year increase of 23% (22% growth calculated at fixed exchange rates), driven by revenue growth from "Brawl Stars," "Clash of Clans: Royale," and "PUBG MOBILE."
Tencent's financial report stated that several evergreen games, including "Honor of Kings" and "Crossfire Mobile," set historical highs in revenue during the traditional peak gaming season in the first quarter. Tencent's marketing services revenue in the first quarter increased by 20% year-on-year to RMB 31.9 billion. This growth was mainly due to strong demand from advertisers for advertising inventory on video accounts, mini-programs, and WeChat search, benefiting from increased user engagement, continuous AI upgrades of the advertising platform, and optimization of the WeChat transaction ecosystem.
In terms of users, WeChat's monthly active users reached 140.2 million, a slight increase of 3% compared to last year. However, the WeChat ecosystem continues to expand across multiple "touchpoints," with social, payment, and mini-games all steadily progressing. Other in-game revenue (virtual items, subscriptions) has driven continuous growth in paid memberships.
AI Strategy Gaining Momentum, Initial Investments Showing Results
Tencent emphasized the important strategic position of AI in its report, continuously investing billions in generative AI, content generation, and recommendation algorithms. This layout marks the core development path for the coming years, relating to advertising, content, content ecology, as well as cloud infrastructure and financial payment innovation.
The diversification of revenue structure is becoming increasingly evident, with a large traditional value-added service (games, short videos) alongside accelerated layouts in enterprise cloud and financial technology, attempting to create an "all-scenario, all-business chain" ecosystem. The company is also actively reducing non-core content costs, consolidating market share through the high-margin "moat" of content.
Additionally, Tencent emphasized its value proposition of "user-centric, technology for good," which will continue to drive strategies that enrich content and enhance user stickiness to respond to competition and market changes.
Capital Expenditures of RMB 23 Billion in the First Quarter, Mainly to Support AI-Related Business Development
Tencent Holdings stated that the group's free cash flow for the first quarter was RMB 47.1 billion. This was net cash flow from operating activities of RMB 76.9 billion, partially offset by capital expenditures of RMB 23 billion (mainly to support the company's AI-related business development), media content payments of RMB 5.3 billion, and lease liability payments of RMB 1.5 billion.
In the first quarter, the company repurchased a total of 42,984,000 shares on the Hong Kong Stock Exchange at a total cost of approximately HKD 17.1 billion. The repurchased shares have since been canceled. The buyback aims to enhance shareholder value in the long term
