Is It Too Late to Buy Tencent Stock Now? The Latest Earnings Report Reveals the Clues

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In the face of fluctuating markets, many investors are confused about the future of Tencent stock. The latest earnings report reveals a clear signal: this may be an opportunity for positioning, rather than a trap.

The core logic of the earnings report lies in the validation of a high-quality growth model driven by AI, coupled with the enormous potential for commercialization of Video Accounts, as Tencent’s long-term value is being revalued.

The latest quarterly data shows strong financial health, with revenue growing 15% year-over-year and gross margin reaching 56%.

Key Points

• Tencent is using artificial intelligence technology to drive company development. This allows the company to earn more money and develop better.
• WeChat Video Accounts is the fastest-growing part of Tencent right now. It brings a lot of advertising revenue to the company.
• Tencent’s gaming business remains very stable. It will bring more revenue in the future.
• Tencent is now repurchasing its own shares. This indicates that management believes the stock price is undervalued.
• Investing in Tencent stock carries risks. Investors need to pay attention to government regulations and market competition.

AI-Driven and High-Quality Growth: Core Highlights of the Earnings Report

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The latest financial report is not just a scorecard; it is more like a blueprint that clearly outlines the core drivers of Tencent’s future growth. The company is shifting from a model reliant on scale expansion to a “high-quality growth” model driven by artificial intelligence (AI) with higher profit margins. This transformation is key to evaluating the long-term value of Tencent stock.

Highlight One: AI Empowers Advertising, Video Accounts Become the Main Growth Engine

One of the most notable data points in the earnings report comes from marketing services, with revenue achieving 21% strong year-over-year growth. The core driver of this growth is precisely the deep application of AI technology.

Tencent’s advertising system is no longer just simple traffic allocation. By introducing advanced AI algorithms, the system can perform more precise ad targeting, significantly improving the effective revenue per mille impressions. This means advertisers get higher returns on every dollar invested, thereby willing to allocate more budget.

How Does AI Change the Rules of the Advertising Game? Tencent is building an “AI-driven overall operational landscape.” Its intelligent placement product matrix Tencent Advertising AIM+ can help advertisers automatically complete targeting, bidding, and creative optimization. For example, the AI system can seamlessly embed ads into video content, dynamically replacing objects in scenes based on user interests (such as changing an ordinary cup to a partnered brand’s coffee cup), integrating the ad experience into native content rather than abruptly interrupting it.

Among all ad carriers, WeChat Video Accounts performed particularly prominently. Its advertising revenue grew over 50% year-over-year, currently accounting for 35% of Tencent’s total ad revenue. The linkage effect formed by Video Accounts, Mini Programs, and Weixin Search has created huge incremental demand for the advertising business, making it the strongest growth engine for the company at this stage.

Highlight Two: Structural Expansion of Profit Margins, Significant Improvement in Profitability

If revenue growth represents “quantity,” then the improvement in profit margins is a leap in “quality.” The earnings report shows that Tencent’s profitability is undergoing structural improvement, directly proving that AI is transitioning from a huge capital expenditure to a real profit driver.

Data Source: Company Quarterly Earnings Report

The steady improvement in gross margin is particularly significant against the backdrop of growth in high-margin advertising and enterprise services businesses. This indicates that the company’s revenue structure is optimizing. At the same time, the substantial increase in adjusted EBITDA margin reflects the company’s outstanding achievements in improving operational efficiency and controlling costs. Management’s strategic determination to place “no limits on computing power and manpower” for AI aims not only to develop new products but also to reshape the internal cost structure through AI technology, building deeper ecosystem moats.

Highlight Three: Steady FinTech and Enterprise Services, Demonstrating High-Quality Growth Model

FinTech and enterprise services, as Tencent’s second growth curve, grew 10% year-over-year this quarter, showing a solid foundation.

• FinTech: Business growth benefits from increased payment activities, including commercial payments and consumer spending. Tencent’s powerful payment infrastructure not only serves massive users in mainland China but also provides underlying support for innovations by various FinTech companies. For example, some service providers focused on cross-border payments (such as Biyapay) leverage this mature ecosystem to offer convenient channels for fund settlement with institutions like licensed banks in Hong Kong.
• Enterprise Services: Tencent Cloud is actively reducing loss-making businesses, concentrating resources on high-margin Platform-as-a-Service products, such as its database services. This strategy of focusing on “high-quality” revenue may impact overall revenue growth in the short term but is crucial for improving the long-term profitability of the segment.

In summary, from the explosive growth in AI-driven advertising, to the structural improvement in profit margins, and to the steady development of FinTech and enterprise services, Tencent’s latest earnings report conveys a clear signal: a healthier, more profitable, and more sustainable growth model is forming.

Core Business Overview Analysis: Is the Foundation Solid?

Beyond the new growth points driven by AI, Tencent’s traditional core businesses—gaming and social networks—form the cornerstone of its value. Evaluating the solidity of these foundations is crucial for judging the long-term investment value of Tencent stock. The earnings report data shows that the company’s core business segments remain resilient, but they also face challenges that cannot be ignored.

Gaming Business: Record-High Deferred Revenue Signals Future Growth

The gaming business, as Tencent’s traditional cash cow, maintains a solid foundation. The earnings report shows that Tencent games hold over 50% market share in mainland China, contributing significantly to revenue. In the third quarter, domestic game revenue reached $6 billion, with international game revenue contributing $2.9 billion.

More importantly, the “deferred revenue” mentioned in the earnings report hit a new high. This is a key leading indicator, representing payments already made by players but not yet recognized as revenue by the company. This signals strong reserves for revenue growth in the gaming business over the next few quarters.

Social Networks: User Engagement and Commercialization Potential

The combined monthly active accounts of WeChat and Weixin reach 1.414 billion, forming Tencent’s deepest moat. The massive user base brings extremely high engagement.

Users spend an average of over 90 minutes per day on WeChat, sending over 45 billion messages daily. This high-frequency interaction provides fertile soil for commercialization.

Tencent is accelerating the exploration of this potential. For example, through AI technology for more precise ad placement in Video Accounts, Mini Programs, and Search, and exploring integration of AI assistants in comment sections and search functions to enhance content interaction and commercial conversion efficiency.

Potential Risks: Macro Environment and Regulatory Uncertainty

Although the foundation is solid, investors must also face potential risks. These risks may pressure the company’s future performance and stock price.

• Increasingly Strict Regulatory Environment: The Chinese government is strengthening regulation in areas such as gaming, content review, and data privacy. Any further policy tightening could affect Tencent’s operations.
• Intense Market Competition: Tencent faces competition not only from mainland rivals like Alibaba and Baidu but also from global tech giants.
• Data Security and Privacy Issues: As a massive platform, Tencent must continuously address cybersecurity threats and user data protection challenges, which relate to user trust and brand reputation.

Tencent Stock Valuation Analysis: Is Now the Time to Buy?

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After clearly understanding the logic of Tencent’s high-quality growth, the question investors care most about emerges: Is the current price a suitable entry point? To answer this, we need an in-depth analysis from three dimensions: valuation levels, institutional views, and the company’s own actions.

Valuation Levels: Is the Current Stock Price at a Historical Low?

Evaluating whether a company’s stock price is “cheap,” the price-to-earnings ratio (PE) is a core reference indicator. It tells us how much investors are willing to pay for every dollar of the company’s earnings.

According to the latest data, Tencent’s forward PE ratio is approximately 23-24 times. This number may seem abstract on its own, but its value becomes apparent through historical and peer comparisons.

Valuation from a Historical Perspective From historical data, Tencent’s valuation has been much higher than current levels. For example, in 2020, its PE reached nearly 26 times. Although the current valuation is not the absolute historical low, relative to its growth potential, it is in a relatively reasonable range.

Compared to global tech giants, Tencent’s valuation also shows competitiveness.

The data shows that Tencent’s valuation is basically on par with peers like Meta and Google, or even slightly discounted. Considering the strong growth momentum Tencent has shown in AI advertising and Video Accounts commercialization, this valuation level provides potential safety margin for investors.

Institutional Views: How Do Major Firms Like CLSA View the Outlook?

How do Wall Street professional analysts view Tencent’s future? Mainstream investment banks’ views provide important references. Although ratings and target prices vary across institutions, the overall tone leans optimistic.

Taking Tencent Music Entertainment Group as an example, we can observe institutional views on companies within the Tencent ecosystem:

Note: The above are ratings for Tencent Music, serving as a reference for market sentiment toward the Tencent ecosystem.

Institutions like Goldman Sachs maintain “Buy” ratings and raise target prices, reflecting their recognition of the company’s improving fundamentals and growth prospects. Although Morgan Stanley’s views have adjusted, its target prices still imply certain upside potential. These analyst reports generally acknowledge Tencent’s growth potential in advertising and enterprise services, believing that the current Tencent stock value may be undervalued.

Shareholder Repurchases: Management Confidence and Stock Price Safety Cushion

Beyond external valuations and institutional views, the company’s management’s own actions are the most direct signal of confidence judgment. In this regard, Tencent has given an extremely strong positive signal.

Tencent announced in May 2025 a stock repurchase plan of up to HKD 80 billion.

Such a massive repurchase plan is rare even in the tech industry. It conveys two clear messages to the market:

1. Extreme Management Confidence: Company management believes the current stock price is far below its intrinsic value, so they choose to repurchase shares with real money.
2. Provides Stock Price Safety Cushion: Ongoing repurchase activity forms stable buying support in the market, helping to prop up the stock price during market volatility and providing investors with a layer of “safety cushion.”

Overall, whether from historical and peer valuation comparisons, mainstream institutions’ positive views, or the company’s unprecedented repurchase actions, all point to one conclusion: the current stock price provides an attractive entry point for long-term investors.

The latest earnings report reveals Tencent’s high-quality growth model centered on AI, but investors still need to be vigilant about macroeconomic risks. For investors pursuing long-term value, the current growth logic and reasonable valuation provide positioning opportunities. Short-term traders need to monitor changes in market sentiment.

Key Indicators to Watch in the Future 📝

• Video Accounts Commercialization: Its GMV has reached approximately 14.3 billion USD, and whether future eCPM can surpass the average of about $6.4-$8.6 for WeChat ads is key.
• New Game Performance: New games like Delta Force contributed $115.7 million in revenue, and its sustained revenue generation is crucial.
• Enterprise Services Profit Margin: Progress in profitability improvement for this segment will validate the effectiveness of the high-quality growth strategy.

Closely tracking these data will help investors assess the long-term potential of Tencent stock.

FAQ

What is the core logic for investing in Tencent now?

Tencent is shifting to AI-driven high-quality growth. AI technology significantly enhances the efficiency of the advertising business and drives structural expansion in company profit margins. This new growth model is reshaping the company’s long-term value, providing investors with a new evaluation perspective.

How important is Video Accounts to Tencent’s growth?

Video Accounts is Tencent’s current strongest growth engine. Its advertising revenue is growing rapidly and has become a key component of marketing services revenue. Its linkage with Mini Programs and Search creates huge incremental space for commercialization.

Is Tencent’s gaming business still growing?

The gaming business foundation remains solid. The earnings report shows deferred revenue hitting a new high. This is a key leading indicator, signaling strong growth reserves for gaming revenue in future quarters and demonstrating business resilience.

What are the main risks in investing in Tencent stock?

Investors need to focus on three core risks:

1. Regulatory Environment: Policy uncertainty in mainland China regarding gaming, content, and data security.
2. Market Competition: Intense competitive pressure from global and mainland Chinese tech giants.
3. Macro Economy: Macroeconomic fluctuations may affect growth in advertising and payment businesses.