According to the Star Daily on November 12 (Reporter Zhang Yangyang), Tencent released its third quarter financial report for 2024 this afternoon, showing that the adjusted net income reached 59.81 billion yuan, far exceeding the market expectation of 54.37 billion yuan, a year-on-year increase of 33%.

In Q3 2024, Tencent's revenue was 167.193 billion yuan, with market expectations of 167.93 billion yuan, reflecting a year-on-year growth of 8% and a quarter-on-quarter increase of 4%; the net income was 53.23 billion yuan, surpassing the market expectation of 45.33 billion yuan, marking a year-on-year increase of 47% and a quarter-on-quarter growth of 12%.

Among all business segments, revenue from value-added services grew by 9% year-on-year to 82.7 billion yuan; marketing services (advertising) revenue grew by 17% year-on-year to 30 billion yuan. Revenue from fintech and enterprise services increased by 2% year-on-year to 53.1 billion yuan.

▍Accelerated game growth, Kimco Realty Corp remains sluggish.

The biggest highlight of Tencent's quarterly report is the significant recovery of value-added services, growing by 9.2% year-on-year, continuously achieving historical highs, with this growth rate being the highest in the past thirteen quarters. The core reason is the recovery of the gaming business. In the evening's conference call, Tencent's chairman of the board of directors, Ma Huateng, also emphasized the strength of the gaming business.

Whether in the domestic market or the international market, Tencent's gaming business has maintained stable growth this year. In this quarter, domestic gaming revenue grew by 14% year-on-year to 37.3 billion yuan, boosted by games including 'Valorant', 'Honor of Kings', 'PUBG Mobile' and 'Dungeon Fighter: Origin'.

International market gaming revenue growth significantly lagged behind total revenue growth. The company explained that this was due to the improved retention rates of certain games, with well-known titles including 'PUBG MOBILE' and 'Brawl Stars' performing strongly; international market gaming revenue for this quarter was 14.5 billion yuan, representing a year-on-year growth of 9% (or an 11% increase at constant exchange rates).

During the evening conference call, tencent executives stated that the domestic market usually has a deferral of 6-9 months, and the international market has a slightly longer deferral, but not by much. In terms of the outlook for international market game revenue, the current trend is very positive, and the deferred revenue accumulated over the past few quarters will gradually manifest, with more upward space expected in this area.

In contrast to the performance of the value-added services business, tencent's financial technology and enterprise services business (financial technology) remains weak. The revenue growth rate for this business in the third quarter of 2024 is only 2%, the lowest growth rate in the past 6 quarters, and payment services have rarely seen a decline, indicating that tencent's financial technology business is under pressure. However, revenues from cloud computing service and merchant technology service fees have increased year-on-year.

▍The video account and mini-program continue to drive advertising growth.

This quarter, tencent renamed "online advertising" to "marketing services" to better reflect the wide range of marketing solutions and supporting technical services offered by the online marketing platform. The revenue for this sector grew by 17% year-on-year in the third quarter to 30 billion yuan, exceeding market expectations due to high base effects, mainly benefiting from high-quality advertising revenue in the WeChat ecosystem and the application of AI technology, where video accounts and mini-programs significantly boosted marketing services revenue.

During the evening conference call, tencent executives expressed being "very excited" about the long-term potential of the entire e-commerce ecosystem. Tencent is upgrading the entire global strategy around WeChat mini-stores, hoping to build a larger e-commerce foundation through the entire WeChat ecosystem.

This quarter, a key focus of the WeChat ecosystem business is upgrading video account mini-stores to WeChat mini-stores, boosting the e-commerce business and, in turn, driving advertising revenue growth.

Through WeChat mini-stores, a merchant can operate an indexed and standardized commodity storefront platform, providing merchants with more traffic and transaction support. WeChat mini-stores leverage WeChat's social interaction, content platform, and payment capabilities to help merchants effectively reach customers and drive sales conversion.

Tencent also announced transaction data for mini-programs— in the third quarter, transaction volume exceeded 2 trillion yuan, with a year-on-year growth of several percentage points, benefiting from better coverage and superior solutions in application scenarios such as ordering food, electric vehicle charging, and medical services.

Tencent's advertising business growth has shown a continuous decline, slowing down compared to the past five quarters. The company points out that this is mainly due to reduced spending in the real estate and csi sws food & beverage index industries.

From the perspective of the advertising market large cap in china, it currently maintains a moderate growth trend, consistent with the recovering economic environment. Data from CTR Media Intelligence shows that from January to September 2024, the advertising market rose by 2.3% year-on-year. Considering the macro environment and the advertising large cap, Tencent's performance is actually very strong in comparison.

Comparing the growth rates of advertising revenue from domestic and international large internet companies, META stands at 19%, amazon at 18.8%, google at 9.4%, microsoft at 6.9%. Sohu's brand advertising revenue in the third quarter was 19 million dollars, which Zhang Chaoyang referred to as "reaching the previously expected upper line," placing Tencent in a favorable category.

▍The slimming down has ended, and more than 3,000 new employees were recruited in Q3.

From the perspective of operating expenses, capital expenditures, and other expenditure indicators, Tencent's three expenses have all risen in the third quarter, with the increase in promotional expenses and R&D spending being quite noticeable, affirming investment in AI and other technology developments reflected in financial data.

Financial report data shows that sales and marketing expenses increased by 19% year-on-year to 9.411 billion yuan, with the rise in promotional expenses related to the intensive launch of new games. General and administrative expenses increased by 11% year-on-year to 29.058 billion yuan, due to rising R&D expenses and employee costs, where R&D spending reached 17.9 billion yuan, nearly a 9% year-on-year increase.

Tencent is currently investing the most in AI, and in an evening conference call, Tencent's board of directors chairman Ma Huateng confirmed the ongoing investment in AI technology.

Currently, Tencent's AI technology is accelerating application layer implementation. In the third quarter, Tencent launched a new generation large model "Tencent Mixed Yuan Turbo" which has doubled training and inference efficiency compared to the previous generation model, while inference costs were halved. Tencent has constructed a full-chain AI large model product matrix from computing power infrastructure to diverse intelligent applications, assisting enterprise clients in applying AI technology to actual industry scenarios. Tencent Mixed Yuan has deeply integrated with more than 700 businesses and scenarios, generating momentum in various fields including advertising.

The demand for cloud computing service driven by AI has also brought new growth points. In that quarter, tencent cloud launched the AI infra brand "Tencent Cloud Intelligence". Currently, 90% of leading large model enterprises have chosen Tencent Cloud Intelligence products and solutions.

Another noteworthy data point is that in the third quarter, tencent's number of employees increased by 3,317 compared to the previous quarter.

Starting in 2022, tencent began cost-cutting and efficiency improvements, with layoffs being an important measure. In the past two years, tencent has eliminated a total of over 8,000 people. However, from the second quarter of this year, tencent's downsizing ended, and new hiring began, with an increase of over 700 employees in that quarter. In the third quarter, tencent's employee count saw significant growth.

In the capital markets, among numerous internet enterprises, tencent is undoubtedly the king of stocks. Recently, funds have significantly increased their holdings in the hong kong stock market, with tencent maintaining its position as the largest heavyweight in fund holdings for three consecutive quarters. By the end of the second quarter, tencent ranked among the top 50 holdings by public funds, with 781 funds holding tencent's stocks, and the market value of the holdings exceeding 47.6 billion yuan.

According to statistics from Wind, based on recent holdings of tencent by southern funds, since November, there has been a trend of net buying, accumulating over 6.7 million shares.