On Friday, Mizuho Securities adjusted its financial outlook for Tencent (HK:0700) Holdings (OTC:TCEHY) shares, increasing the price target to HK$330 from the previous HK$310, while keeping a Neutral stance on the stock. The adjustment comes as the firm anticipates a recovery in the gaming sector, specifically in the second quarter of 2024.
Tencent's Value-Added Services (VAS) revenues are projected to experience a slight year-over-year decline of 2%, which aligns with the general market consensus. This forecast is attributed to a reduced number of game releases in the first quarter of 2024.
However, the company's domestic and international game revenues are expected to see contrasting trends, with domestic revenues decreasing by 3% and international revenues increasing by 3% year-over-year.
The firm also predicts that Tencent's advertising and financial technology segments will see revenue growths of 18% and 14%, respectively. These figures are in line with market expectations and are believed to be driven by better monetization of video accounts and a resurgence in payment volumes.
Overall, Tencent is anticipated to achieve a 6% year-over-year increase in revenue. Despite this, Mizuho forecasts Tencent's adjusted operating income at 42 billion RMB, which is slightly below the consensus estimate of 43 billion RMB. This discrepancy is due to a more conservative view on the rate of expense growth.
Looking forward to the fiscal year 2025, Mizuho has raised its EBITDA estimate for Tencent by 5% to 285 billion RMB. This revision is based on expectations of more game releases in the second half of 2024 and the company's ability to apply lessons from recent efforts to enhance monetization strategies.
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