Tencent Q4 Net Profit increased by 90% YoY, annual capital expenditure hit a new high, 80 billion Hong Kong dollar buyback shock

Driven by the upgrade of AI empowered ad platform, the improvement of WeChat Channels customer engagement, and the growth of Evergreen Games, Tencent’s revenue and profit in Q4 and the whole year of 2024 exceeded market expectations.

In addition, Tencent recently restructured the AI team, focusing on product innovation and model research and development, while increasing AI-related investment, capital expenditures in the fourth quarter of last year increased by more than twice, and capital expenditures for the whole year increased by more than twice and reached a historical high.

On Wednesday, the 19th, Tencent Holdings released its annual performance report for the year ended December 31, 2024, demonstrating strong financial performance and business momentum.

• Revenue: The annual revenue in 2024 is 660.257 billion RMB, an increase of 8% year-on-year, and the operating profit is 208.10 billion RMB, an increase of 30% year-on-year. Among them, the revenue in the fourth quarter is 172.446 billion, an increase of 11% year-on-year, exceeding market expectations.
• Net Profit: Net Profit for the whole year was 194.073 billion RMB, up 68% YoY. Net Profit for Q4 was 51.324 billion RMB, up 90% YoY, better than market expectations.
• Gross profit margin: The annual gross profit margin increased to 53%, a significant increase from 48% in 2023, mainly due to the strong growth of high gross profit margin domestic market games, WeChat Channels and WeChat Search.
• Earnings per share: Basic earnings per share was 20.938 yuan, an increase of 72% year-on-year.

According to the surging coverage, on March 19th, in the Tencent annual report communication meeting, Tencent CEO Ma Huateng said that in the field of embodied intelligence, Tencent hopes to become a partner of all robot manufacturers, rather than replacing hardware, which is consistent with our overall strategic goal.

According to reports, Ma Fei also said that he had communication with Liang Wenfeng and that the AI ecosystem is still in its early stages.

The intelligence level of AI has greatly improved compared to previous years. After careful consideration, Tencent has embraced DeepSeek for its cloud business and Yuanbao. The opportunity for future application development has arrived, and various companies are adopting AI for implementation. We also see the development of AI Agents, which has a lot of room for imagination behind AI-related tools.

Currently, the AI ecosystem is still in its early stages, and all industries will benefit from the popularization of AI. We believe that every industry will embrace this opportunity. We have communicated with Liang Wenfeng in our industry and admire the emergence of independent and open source products in the market, which we greatly respect.

1. Three major business segments grow comprehensively

Value-added service business: Value-added service revenue reached 319.20 billion yuan in 2024, an increase of 7% year-on-year.

Among them, the international market games performed well, with revenue of 58 billion yuan, an increase of 9%, thanks to the strong performance of PUBG MOBILE and Supercell games. The domestic market game revenue increased by 10% to 139.70 billion yuan, and the new games Dungeon & Fighter: Origins and Delta Action became new growth points.

It is worth noting that Tencent has expanded its Changqing game portfolio, increasing the number from 12 in 2023 to 14 in 2024. This game strategy, which focuses on long lifecycles and stable returns, provides the company with continuous cash flow support.

Marketing Services: The revenue of the marketing services business reached 121.40 billion yuan in 2024, a year-on-year increase of 20%, becoming the fastest-growing business segment. This impressive performance is mainly due to the strong demand of advertisers for WeChat Channels, Mini Programs, and WeChat Search advertising inventory, as well as the upgrade of AI-driven advertising technology platforms. Advertising spending in the gaming, e-commerce, education, and internet service industries has significantly increased. Tencent’s competitiveness in the mobile advertising field continues to increase, especially with the help of AI technology to improve its precise advertising delivery capabilities.

Fintech and Enterprise Services: The revenue of Fintech and Enterprise Services business will reach 212 billion yuan in 2024, an increase of 4% year-on-year.

The growth of financial technology service revenue is mainly due to the increase in wealth management services and commercial payment service revenue, while Enterprise Services revenue is driven by WeCom revenue and merchant technology service fee growth. It is worth noting that the gross profit margin of this business segment has significantly increased from 40% to 47%, indicating that Tencent has made significant progress in cost control and business efficiency.

In terms of WeChat ecosystem expansion, the combined monthly active users of WeChat and WeChat reached 1.385 billion, a year-on-year increase of 3%. The company has improved customer engagement and transaction capabilities by launching WeChat stores to provide indexed and standardized product trading experiences. The total user usage time of WeChat Channels has grown rapidly year-on-year, benefiting from the improvement of recommendation algorithms and more localization content. The rapid growth of WeChat search volume has become the main driving factor for the improvement of search result relevance and quality.

2. Tencent’s capital expenditure hits a new high, continuing to up the ante AI investment

Tencent’s capital expenditure in the fourth quarter reached 36.578 billion yuan, an increase of 114% month-on-month and 386% year-on-year, achieving triple-digit growth year-on-year for four consecutive quarters. In 2024, the annual capital expenditure exceeded 76.70 billion yuan, an increase of 221% year-on-year, reaching a historical high , of which AI-related R & D investment was 70.70 billion yuan.

Tencent clearly stated in its financial report that it has restructured its AI team to focus on rapid product innovation and deep model development, and has increased AI-related capital expenditures. The company believes that these investments will bring sustained returns by improving advertising business efficiency, extending game lifecycle, and creating longer-term value as personal AI applications become more popular and enterprises adopt AI services. Looking to the future, Tencent stated that the company will continue to increase investment in the AI field and create long-term value by improving advertising business efficiency and game lifecycle. Tencent President Liu Chiping said in a conference call later, The company plans to further increase capital expenditures in 2025, "expecting capital expenditures to account for a low double-digit percentage of revenue."

3. Plan to repurchase stocks worth at least 80 billion Hong Kong dollars

In 2024, Tencent will distribute a cash dividend of HK $3.40 per share (approximately HK $32 billion) and repurchase approximately HK $112 billion worth of stock. In 2025, the company proposes to increase the annual dividend by 32% to HK $4.50 per share (approximately HK $41 billion) and plans to repurchase at least HK $80 billion worth of stock.

The financial report is impressive, AI has just begun, repurchasing stocks, so strong.

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