On Thursday, Nomura/Instinet reiterated a Buy rating for Tencent Holdings (HK:0700) (700:HK) (OTC: OTC:TCEHY) stock, with a steady price target of HK$500.00. The firm highlighted Tencent's third-quarter performance, noting an 8% year-over-year increase in total revenue, aligning with the latest Bloomberg consensus.
The company's non-IFRS earnings rose by 33% year-over-year, surpassing both the Street's and Nomura's expectations by 10% and 8%, respectively. This surge was attributed to higher-than-expected non-operating income and lower tax fees.
Tencent's gross margin saw a notable improvement, increasing by 3.6 percentage points year-over-year to 53.1% in the third quarter, albeit slightly below the Street's projection of 53.4%. The company's value-added (VA) ads revenue experienced a 17% year-over-year growth, exceeding market predictions of 16%.
This increase was primarily driven by revenue from Video Account (VA), Mini Programs, Weixin Search, and contributions from Paris Olympics-related brand advertising.
The report further detailed that Tencent's VA ads revenue jumped over 60% year-over-year in the third quarter, which was more than Nomura's forecast of 57% year-over-year growth. VA ads are estimated to constitute 17% of Tencent's total marketing services revenue.
While the VA ads segment shows potential for significant growth, Nomura suggests that the development of a fully-fledged e-commerce ecosystem is essential for Tencent to maximize its advertising potential.
In other recent news, Tencent Holdings Limited announced an 8% year-on-year increase in total revenue, reaching RMB 167.2 billion in the third quarter of 2024.
The company's net profit attributable to equity holders saw a significant 33% rise to RMB 59.8 billion, and diluted earnings per share (EPS) increased by 36% to RMB 6.34. These positive results were primarily driven by robust performances in the games segment, digital content, and marketing services.
Tencent's games segment revenue grew by 14% domestically, supported by popular titles like DnF Mobile and Delta Force. The company's digital content subscriptions also experienced growth, with Tencent Music reporting 119 million subscribers and long-form video reaching 116 million subscribers.
In addition to these developments, Tencent continues to invest in AI technology and is expanding its e-commerce strategy through Weixin Mini Shops. The company launched Hunyuan Turbo to enhance AI capabilities and efficiency.
Despite facing challenges in the short video and live streaming e-commerce markets, Tencent remains optimistic about its international games revenue and the long-term prospects of the Mini Shops and e-commerce business.
These are among the recent developments at Tencent, demonstrating the company's commitment to revenue growth, profitability, and strategic investments in AI and e-commerce.
InvestingPro Insights
Tencent's strong performance, as highlighted in the Nomura/Instinet report, is further supported by recent data from InvestingPro. The company's market capitalization stands at an impressive $484.26 billion, reflecting its significant position in the tech industry. Tencent's revenue growth of 7.91% over the last twelve months aligns closely with the 8% year-over-year increase mentioned in the article, demonstrating consistent performance.
InvestingPro Tips reveal that Tencent is a "Prominent player in the Interactive Media & Services industry," which is evident from its robust financial metrics and market presence. The company's ability to maintain dividend payments for 20 consecutive years underscores its financial stability and commitment to shareholder returns, despite the recent dividend growth decline.
Moreover, the InvestingPro data shows a healthy EBITDA growth of 34.26% over the last twelve months, which supports the article's mention of Tencent's earnings surpassing expectations. This strong growth, coupled with the company's moderate debt level, suggests a solid financial foundation for future expansion, particularly in areas like Video Account advertising and e-commerce ecosystem development.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Tencent, providing deeper insights into the company's financial health and market position.
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