Tencent Reports 47% Profit Jump, Driven by Gaming and AI Innovation

Tencent, the Chinese social media and gaming giant, reported a strong third-quarter performance, exceeding expectations with a 47% year-on-year surge in profit. The company’s profit attributable to shareholders reached 53.23 billion yuan ($7.37 billion), surpassing the 46.18 billion yuan estimate by analysts.

While revenue grew 8% to 167.19 billion yuan, it fell slightly short of the forecasted 167.82 billion yuan. Gaming continued to be the company’s core driver, with domestic gaming revenue rising 14% to 37.3 billion yuan, and international gaming revenue climbing 11% to 14.5 billion yuan, adjusted for constant currency. Tencent highlighted the "evergreen potential" of both its existing and new games.

The company’s marketing services revenue, previously known as online advertising, surged 17% year-on-year, reaching 29.99 billion yuan, marking it as one of the fastest-growing sectors outside of gaming. This growth was attributed to strong demand from advertisers for Tencent’s short video features, mini programs, and search functions within its Weixin and WeChat apps. Global monthly active users of the messaging platform grew by 3% year-over-year to 1.38 billion in Q3.

Tencent also credited its self-developed AI tools for contributing to improved performance. The company reported significant benefits from integrating AI into various products and services, including marketing and cloud. AI-driven features such as enhanced search capabilities within Weixin led to increased commercial queries and improved click-through rates. In June, Tencent upgraded its advertising feature, allowing AI to assist in creating and selecting targeted ads within articles and videos. This led to a nine-fold increase in the number of accounts using this feature, now over 200,000.

In an effort to compete with ByteDance's Douyin (the local version of TikTok) and other e-commerce giants, Tencent has been expanding its short video and mini-program offerings. The company's mini-programs saw impressive growth, with their gross merchandise value (GMV) increasing by the "high teens" percentage from the previous year, surpassing 2 trillion yuan. These mini-programs are now widely used for services such as food ordering, electric vehicle charging, and medical consultations.

However, despite these positive results, Tencent's stock price has faced pressure in the pre-market, dropping over 2%. It's uncertain whether this earnings report will be enough to hold the stock at its current support level of 51.04 yuan. If the stock holds this level, the next resistance position is at 56.22 yuan.

For investors looking to gauge Tencent's stock performance amid these fluctuations, it will be crucial to monitor the upcoming market reaction and whether the company can maintain its growth trajectory in a challenging global market.