Tencent Holdings Ltd (TCEHY) Q1 2025 Earnings Call Highlights: Strong Revenue Growth and AI ...
Gross Profit: RMB100 billion, up 20% year on year.
Non-IFRS Operating Profit: RMB69 billion, up 18% year on year.
Non-IFRS Net Profit Attributable to Equity Holders: RMB61 billion, up 22% year on year.
Value-Added Services Revenue: RMB92 billion, up 17% year on year.
Social Networks Revenue: RMB33 billion, up 7% year on year.
Domestic Games Revenue: Up 24% year on year.
International Games Revenue: Up 23% year on year.
Marketing Services Revenue: RMB32 billion, up 20% year on year.
Fintech and Business Services Revenue: RMB55 billion, up 5% year on year.
Gross Margin: 56%, up 3 percentage points year on year.
Operating Expenses: Selling and marketing expenses were RMB7.9 billion, up 4% year on year.
R&D Expenses: RMB18.9 billion, up 21% year on year.
Free Cash Flow: RMB47.1 billion, down 9% year on year.
Net Cash Position: RMB90.2 billion, up 17% quarter on quarter.
Warning! GuruFocus has detected 9 Warning Signs with STU:IGV0.
Release Date: May 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Tencent Holdings Ltd (TCEHY) reported a 13% year-on-year increase in total revenue for Q1 2025, reaching RMB180 billion.
Gross profit rose by 20% year-on-year to RMB100 billion, marking a significant improvement in profitability.
The company's non-IFRS net profit attributable to equity holders increased by 22% year-on-year to RMB61 billion.
Tencent's AI capabilities are contributing positively to various business segments, including advertising and gaming.
The Weixin and WeChat platforms saw growth in monthly active users, reaching 1.4 billion, indicating strong user engagement.
Finance costs increased by 37% year-on-year, primarily due to foreign exchange losses.
Free cash flow decreased by 9% year-on-year, largely due to increased capital expenditures on GPUs and servers.
Interest income declined by 12% year-on-year due to lower interest yields.
There is a temporary narrowing of the gap between revenue and operating profit growth rates due to AI investments.
The commercial payment volume experienced a slight decline year-on-year in Q1, reflecting potential macroeconomic challenges.
Q: Can management comment about the outlook and differentiation of Weixin versus peers in the market, and strategies across various AI business models? A: Chi Ping Lau, President: We are developing agentic AI capabilities within Weixin, which will be unique due to its integration with the Weixin ecosystem, including social graphs and content ecosystems. In terms of AI business models, advertising is directly augmented by AI, improving targeting capabilities. GPU rental is currently a lower priority due to short supply, and subscriptions are not a mainstream model for AI in China.
Q: What is the current progress with the Yuanbao integration into the Weixin ecosystem, and what synergies do you expect? A: Chi Ping Lau, President: Yuanbao is still in the early stages of development. Users are using it for questions and dialogues, and we plan to provide more linkage with the Weixin ecosystem. It's too early to summarize systematic synergies, but we expect more developments in the coming quarters.
Q: Could you discuss the longer-term implications for growth in the domestic games segment and any regulatory changes affecting app stores? A: James Mitchell, Chief Strategy Officer: The first quarter benefited from easy comparisons, but we see a long runway for growth due to changes in game operations and AI utilization. Regarding app stores, there is a shift towards a fairer share of revenue for digital content creators, which is more advanced in China and expected to progress globally.
Q: What are some notable user behavior changes post-AI integration into Tencent's business applications? A: Chi Ping Lau, President: It's too early for systematic analysis, but users are increasingly interacting with AI agents. We are in a discovery phase, adding functionalities and observing user engagement.
Q: How is the US licensing requirement for high-end GPUs affecting Tencent's AI development and product launches? A: Chi Ping Lau, President: The situation is dynamic, but we have a strong stockpile of chips. We prioritize applications generating immediate returns, like advertising. We are optimizing software to manage GPU needs and exploring alternative chips for inference.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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