Will Tencent's Q1 2025 results show success in its AI strategy?

Written by

Fabien Yip

Market Analyst, IG

When is Tencent reporting earnings?

Tencent will release its first-quarter 2025 results at 8.00pm (Hong Kong time) on Wednesday 14 May 2025. This earnings report will be crucial in providing insights into the Chinese tech giant's financial performance and strategic direction.

Earnings expectations

As one of the world's largest technology conglomerates, Tencent's results will be closely watched by investors globally. The company's diverse business portfolio spans gaming, social media, digital payments, and cloud services, making it a bellwether for China's tech sector.

Analysts have positive expectations for Tencent's first quarter of 2025, forecasting revenue growth of 9.5% year-on-year (YoY) to RMB 174.6 billion.

Net profit attributable to equity holders is anticipated to improve by an impressive 18.3% to RMB 59.5 billion. The gross margin is expected to show a slight improvement, rising from the previous year's 52.6% to 53.7%. This projected increase indicates potential improvement in operational efficiency and successful cost control measures implemented by the company.

Figure 1: Financial results expectations

What to watch for in Tencent's report

Value-added services, which include gaming and social networks, remain Tencent's core business segment, accounting for 46% of its revenue in Q4 2024. Analysts expect this segment to grow at 11% YoY, driven by the continued success of its gaming portfolio.

The gaming business warrants special attention as it faces unique challenges from regulatory oversight and consumption cycles. Tencent's flagship game, Honor of Kings, and its new blockbuster, Delta Force, are expected to be significant revenue drivers, with investors closely monitoring the pipeline of upcoming game releases.

The marketing services segment has shown resilience despite broader industry headwinds. Since 2015, Tencent has enhanced its ad system with artificial intelligence (AI) capabilities. Tencent's ability to leverage its vast ecosystem, improve ad targeting and creative content through AI technology strengthened its competitive advantage in the Chinese digital advertising market. This segment is expected to grow at 15% YoY.

Shareholder returns have traditionally been another focal point of Tencent's earnings report. The company delivered share buyback of HK$112 billion in fiscal year 2024, and paid cash dividend of HK$32 billion last year. Investors will be keen to hear management's guidance on these measures of corporate governance.

Figure 2: Tencent’s revenue breakdown by business segment

Tencent's strategic focus on artificial intelligence

Tencent has been aggressively ramping up its investments in AI, positioning itself as a frontrunner in China's AI race. The company is developing its own large language models to compete with domestic and international rivals.

The integration of AI technology into Tencent's core platforms, such as Weixin chat and its advertising systems, represents a strategic priority. These enhancements could significantly improve user experience and operational efficiency, potentially boosting long-term revenue growth.

Capital expenditure (CAPEX) on AI is expected to grow at a low teen percentage rate signalling Tencent's commitment to technological innovation as a key driver of future growth. The company's ability to monetise these investments will be crucial for long-term shareholder value creation.

Risk factors

Regulatory oversight remains the most significant risk factor for Tencent. The Chinese government has implemented various regulations affecting the tech sector, particularly regarding gaming access for minors, data privacy, and platform monopolies.

Competition in the Chinese tech ecosystem continues to intensify. Companies like Alibaba, ByteDance, and emerging platforms are challenging Tencent's dominance across various business segments, potentially pressuring future growth prospects.

Analyst outlook

Analyst sentiment on Tencent remains predominantly positive, with 47 out of 50 analysts giving the stock either a 'buy' or 'strong buy' recommendation. This bullish outlook reflects confidence in the company's growth strategy and market position.

The average one-year price target from analysts stands at HK$597.08, suggesting a potential 15% increase from the 12 May 2025 closing price of HK$517.5. With a forward price-to-earnings ratio of 17, Tencent's valuation is not particularly cheap compared to Chinese and global peers. However, many analysts argue that the company's growth profile and ecosystem advantages justify this premium.

Figure 3: Wall street analyst estimates

Figure 4: Peer comparison

Share price technical analysis

Tencent shares have risen 24% year-to-date, outperforming the broader Chinese equity market. However, they still trade at a 28% discount to their all-time high of HK$715, suggesting potential room for recovery.

The technical chart shows a clear uptrend with the share price trading well above the technically significant 200-day simple moving average. This positive technical setup supports the bullish fundamental outlook projected by most analysts.

A stronger-than-expected earnings report could drive the share price toward the upper bound of the rising channel and the recent peak at HK$547. Conversely, disappointing results could see the stock testing support near the lower bound of the rising channel at HK$471, with potential for further decline towards HK$425 if this support is breached.

Figure 5: Tencent daily price chart