Tencent, the Chinese technology and entertainment company, has multiple business ventures in entertainment (primarily gaming), financial technology, and other internet services. One of Tencent’s most popular services is WeChat, an all-in-one app used for messaging, social media, payments, and other applications. Additionally, Tencent has a variety of investments in gaming companies, such as Riot Games, which publishes the popular League of Legends franchise, which has 150 million active accounts.
Last week, Tencent released their Q4 2024 results. Revenue for the quarter was RMB 172.4 billion (1 USD = 7.25 RMB), up 11% year over year. Gross profit for the quarter increased by 17% to RMB 90.6 billion, while operating profit rose to RMB 51.5 billion, up 24% year over year. Tencent’s gaming division grew 14% year over year, accounting for 46% of their revenue in Q4 2024.
Tencent has seen its share price increase by over 20% this year. However, the gaming division hasn’t been the primary driver behind Tencent’s stock price increase. Earlier this year, a Chinese company called DeepSeek released a Large Language Model (LLM) called R1, which appeared to have capabilities similar to those of OpenAI, Google, and Meta’s LLMs. DeepSeek claimed they spent a fraction of the cost to train their AI model compared to their US competitors.
Tencent plans to integrate DeepSeek’s AI-powered search into Weixan, Tencent’s domestic version of WeChat, rather than use their own proprietary LLMs. To support their AI cloud strategy, Tencent is still increasing their capital expenditure to accommodate the necessary networking requirements. In the most recent quarter, they spent RMB 36.5 billion in capital expenditure, 4.8 times more than they did in the same quarter last year.
Tencent’s recent business strategy has focused on making acquisitions to gain market share. However, there is a risk that Tencent may overpay for acquisitions that do not result in a significant increase in revenue and net profit. Time will tell how capable Tencent is at generating revenue with its AI strategy.
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