Tencent Q2 net profit increased by 17% year-on-year, exceeding expectations, with revenue growth of 15% and a 16% increase in gaming business | Financial Report Insights

Tencent Holdings' revenue in the second quarter increased by 15% year-on-year to 184.5 billion yuan, exceeding the market estimate of 178.94 billion yuan; net profit grew by 17% year-on-year. During the quarter, Tencent's R&D investment reached 20.25 billion yuan, a year-on-year increase of 17%; capital expenditure surged to 19.1 billion yuan, a year-on-year increase of 119%, far exceeding last year's 8.7 billion yuan.

On August 13, Tencent Holdings announced its Q2 financial report:

• Revenue: Q2 revenue of 184.5 billion yuan, a year-on-year increase of 15%, and a quarter-on-quarter increase of 2%
• Net profit: Net profit attributable to shareholders of 55.6 billion yuan, a year-on-year increase of 17%, and a quarter-on-quarter increase of 16%
• Gross margin: Increased from 53% in the same period last year to 57%, indicating continued improvement in profitability
• Cash position: Net cash of 74.6 billion yuan, a decrease of 15.6 billion yuan from Q1, mainly due to dividend payments

Core business progress:

• Gaming business (value-added services) returns to high growth track: Year-on-year growth of 16%, with domestic market growth of 17% and international market soaring by 35%. The new game "Delta Action" has become a hit, while older games like "Honor of Kings" and "Clash Royale" have been revitalized, demonstrating strong game R&D, operation, and platform capabilities.
• Marketing services (advertising) business grows strongly: Year-on-year growth of 20%, with AI-driven advertising platform upgrades effectively improving click-through rates and conversion rates, and the commercialization potential of WeChat ecosystem products like video accounts and mini-programs continues to be released.
• Financial technology and enterprise services show steady growth: Year-on-year growth of 10%. Enterprise services benefit from AI-related demand (GPU leasing, model API calls), with growth accelerating compared to previous quarters, becoming a new highlight.

Gaming business shows resilience, AI becomes new growth engine

The biggest surprise this quarter is undoubtedly the strong recovery of the gaming business. Revenue from value-added services increased by 16% year-on-year to 91.4 billion yuan, of which:

• Domestic market game revenue increased by 17% year-on-year to 40.4 billion yuan, mainly due to the strong contribution of the new hit "Delta Action," which surpassed 20 million daily active accounts in July. At the same time, "Honor of Kings" and "Peace Elite," as "cash cows," continue to maintain steady growth through platform operation and AI applications.
• International market game revenue soared by 35% to 18.8 billion yuan, with Supercell's "Clash Royale" achieving a seven-year high in revenue, and "PUBG MOBILE" performing steadily.

AI investment begins to show returns. Tencent's application of AI in advertising has the most obvious effects, with marketing service revenue increasing by 20% year-on-year to 35.8 billion yuan, a growth rate significantly higher than the industry average. The company has significantly improved advertising click-through rates and conversion rates by upgrading its advertising base model, driving revenue growth across major traffic platforms. The strong performance of high-margin products like video accounts and WeChat search has pushed the overall gross margin up from 53% in the same period last year to 57%However, the cost pressure of AI investment is also worth noting. General and administrative expenses increased by 16% year-on-year to 31.9 billion yuan, primarily due to increased R&D spending to support AI-related business development. In the current quarter, Tencent's R&D investment reached 20.25 billion yuan, a year-on-year increase of 17%; capital expenditure surged to 19.1 billion yuan, with a year-on-year growth rate of 119%, far exceeding last year's 8.7 billion yuan. This indicates that Tencent is making significant investments in AI infrastructure.

Strong Growth in Advertising and Enterprise Services, Increased User Differentiation on Social Platforms

Marketing service revenue increased by 20% year-on-year to 35.8 billion yuan, with gross margin rising from 56% to 58%. The core driver of growth is very clear: AI has upgraded the advertising platform. By empowering the entire process from ad creation, placement to performance analysis, ad click-through rates and conversion rates have improved, leading advertisers to allocate more budget to high-profit channels such as video accounts, mini-programs, and search.

Revenue from fintech and enterprise services increased by 10% year-on-year to 55.5 billion yuan. The growth rate of enterprise service revenue "has accelerated compared to recent quarters," clearly benefiting from the increased demand from enterprise clients for AI-related services, including GPU leasing and API token usage. This indicates that Tencent's "Hunyuan" large model is moving from concept to commercialization, injecting new growth momentum into its cloud business.

The WeChat ecosystem remains robust. The combined monthly active users of WeChat and WeChat reached 1.411 billion, a year-on-year increase of 3%. Although the growth rate has slowed, the user base remains solid. More importantly, WeChat is enhancing user stickiness and commercialization efficiency through the integration of AI features, such as intelligent keyword search and smart customer service replies. However, the monthly active users of QQ on mobile declined by 7% to 532 million, a downward trend that has persisted for several quarters. While QQ still holds value among specific user groups, its position as an important component of Tencent's social landscape is weakening.

Tencent Holdings announced that, as of June 30, 2025, the company repurchased a total of 81,867,000 shares on the Stock Exchange at a total cost of approximately HKD 36.5 billion (excluding expenses). The repurchased shares have since been canceled. The buyback aims to enhance shareholder value in the long term.

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