To The Moon

$TENCENT(00700)$ ( BUY) - 3Q25 Results: Broad-based Growth, AI Momentum Building, WeChat EcosystemStrengthening; Maintain BUY and Increase PT to HK$700

Tiger Research maintain our BUY rating and increase our price target to HK$700 (previously HK$645), as Tencent reported another solid quarter with both revenue and profit growth exceeding market expectations, supported by broad-based strength across advertising, gaming, and fintech & business services. Total revenue grew 15% YoY to RMB193bn, while non-IFRS operating profit rose 18% to RMB73bn. The tone of management commentary was notably confident, highlighting accelerating AI adoption across its core ecosystems and early signs of monetization leverage within WeChat and advertising.

• Advertising remained the key outperformer, growing 21% YoY on strong demand across all verticals and meaningful uplift in eCPM driven by AI-powered ad technologies and closed-loop measurement. Management noted that roughly half of the ad growth came from price improvements, underpinned by the rollout of AIMarketingPlus, Tencent’s automated campaign optimization system. Engagement and ad load also increased across Video Accounts, mini-programs, and search. The company expects these AI-driven tools to continue improving ROI and broadening advertiser adoption into 2026, suggesting sustained revenue momentum.

• Gaming performance was strong, with domestic game revenue up 15% YoY led by Arena Breakout, Valorant, and Delta Force, which now ranks among China’s top-three grossing titles. International games grew 43% YoY, aided by the consolidation of newly acquired studios and upfront recognition of Dying Light: Beast sales. Management cautioned that international growth will normalize in 4Q as the one-offs fade, but reiterated confidence in long-term expansion through global publishing and M&A.

• Fintech and business services revenue rose 10% YoY, with commercial payment volume accelerating sequentially and consumer credit quality remaining among the best in the industry. Cloud revenue delivered double-digit growth despite GPU supply constraints, reflecting solid demand for storage, data management, and enterprise AI solutions. Management noted that cloud profitability continues to improve and remains a structural driver for medium-term margin expansion once chip bottlenecks ease.

• AI was again the centerpiece of the call. Tencent is scaling up its Hunyuan foundation model team and infrastructure, emphasizing improvements in complex reasoning, coding, and scientific computation. Its image and 3D generation models are already among the global leaders. Within WeChat, the integration of AI capabilities is gaining traction—Yuanbao (its AI assistant) is being embedded into Video Accounts, Official Accounts, news feeds, and search to summarize content and generate follow-up engagement. Over time, Tencent envisions a “WeChat AI agent” that can execute communication, content, commerce, and payment tasks seamlessly across the ecosystem, unlocking significant monetization and retention potential.

CapEx for 2025 is now expected to be below the previous guidance range but above 2024, mainly reflecting timing differences in GPU deliveries. Management emphasized that current GPU resources are sufficient to meet internal demand, allowing Tencent to pursue a measured yet focused AI investment approach.

Overall, we view 3Q25 as a strong print that reinforces Tencent’s strategic positioning as China’s most advanced AI platform with tangible near-term monetization drivers. Advertising momentum and WeChat ecosystem integration are outperforming expectations, while disciplined CapEx and sustained margin gains in cloud and fintech support earnings quality. The combination of AI-driven monetization, expanding WeChat commerce, and resilient payment trends underpins a healthy outlook into 2026. We remain positive on Tencent’s ability to deliver steady double-digit earnings growth while laying the groundwork for multi-year AI commercialization.

Estimate revisions. Increasing 4QE total revenue estimate by 1%, gross income estimate by 2%, adjusted EBITDA by 2%.

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