TMTPOST -- Tencent Holdings Ltd. on Wednesday posted stronger-than-expected sales, fueled by solid online gaming and artificial intelligence (AI)-powered advertising, as the Chinese social media and video game giant ramps up spending to ride the AI wave.

Credit：The Paper

Tencent reported total revenue of RMB172.4 billion (US$23.9 billion) for the quarter ended December 31, ahead of analysts' estimated RMB168.9 billion. The top line rose 11% year-over-year (YoY), accelerating from a 8% increase three months ago.The bottom also picked up speed for the fourth quarter. On an IFRS basis, the profit attributable to equity holders of the company, or net income, jumped 90% YoY to RMB51.3 billion after a 47% YoY rise for the previous quarter. That beat analysts’ projection of RMB 46.03 billion. Diluted earnings per share (EPS) were RMB5.49 with a 95% YoY increase, compared with a gain of 50.4% for the third quarter. On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items, the net income popped 30% YoY to RMB55.3 billion after a 33% increase.

For the full year 2024, revenue added 8% YoY to RMB660.6 billion. The net income on an IFRS basis climbed 68% to RMB194.1 billion, and the non-IFRS net income came in at RMB222.7 billion, up 41% YoY.

Tencent’s top business gaming maintained solid performance after resuming positive growth April to June. For the December quarter,VAS (value-added services), including game and social network business, brought RMB79.0 billion with a 14% YoY rise. That was the first double-digit increase in revenue over the past year, following an increase of 9% for the preceding quarter.

Revenue from International Games grew 15% YoY to the new record of RMB16.0 billion for the December quarter after the business overseas delivered a 9% YoY increase in sales. Acceleration of International Games was driven by robust performances from Brawl Stars and PUBG MOBILE, alongside the early access release of Path of Exile 2. Domestic Games generated RMB33.2 billion. The revenue growth also accelerated to 23% after a 14% YoY increase for the June quarter. Domestic revenue benefited from a low base in the prior year’s period, sales growth from major games such as Honour of Kings, Peacekeeper Elite and VALORANT; and contributions from recently released games DnF Mobile and Delta Force, Tencent said.

Social Networks revenues rose 6% YoY to RMB29.8 billion, primarily due to growth in app-based game virtual item sales, music subscription revenues and Mini Games platform service fees. Revenue from that division was also stronger than the third quarter when Tecent recorded a 4% YoY increase.

Marketing Services  delivered a steady growth. Revenues from the division were RMB35.0 billion for the fourth quarter, up 17% YoY, the same increase as three months ago. That was driven by  robust advertiser demand for Video Accounts, Mini Programs and Weixin Search inventories. Tencent said advertising spending rose across most major categories during the December quarter.

Revenues from FinTech and Business Services climbed 3% YoY to RMB56.1 billion, compared with a 2% YoY increase for the third quarter. The revenue growth reflected higher revenues from wealth management services and consumer loan services, while commercial payment services revenue was broadly stable YoY. Higher Business Services revenues were driven by growth in eCommerce technology service fees and WeCom revenue.

“Benefitting from AI-powered enhancements to our advertising platform, higher engagement in Video Accounts, and growth in our evergreen games, we achieved double digit revenue growth while sustaining continued operating leverage in the fourth quarter of 2024,” said Tencent CEO Ma Huateng, or Pony Ma, in a statement Wednesday.

The financial report showed Tencent joined a new round of AI spending spree after Chinese upstart DeepSeek shocked Silicon Valley with a competitive model comparable to OpenAI’s at a fraction of the cost cost of the U.S. rival. Tencent and other Chinese tech giants double down the release of similar model upgrades or ramp up investments in AI infrastructure. Some leading AI companies are now embracing more efficient AI systems that can run on fewer chips, while the shift may not means significant cost reduction but a transfer of more of cost from the development stage to after the model is rolled out.

Tencent’s capital expenditure for the December quarter surged 386% YoY to RMB36.6 billion, representing the company spent approximately one-fifth of the total revenue. The Capex for the year more than tripled to RMB76.8 billion, hitting the annual record. That accounted for 11.6% of revenue during the year.

In a statement on Wednesday,Tencent said it stepped up AI investments to meet internal business needs, train foundation models and support surging demand for inference from  users. The company intends to further increase capital expenditures in 2025 and believe these AI investments will generate good economic returns and value. Tencent expects the Capex to account for low teens percentage of its revenue in 2025, said the President Martin Lau on a post-results briefing.

To demonstrate the capacity to further return capital to shareholders, Tencent proposed to increase annual dividend by 32% for the year 2025 to HK$4.50 per share, equivalent to approximately HKD41 billion in total, and it intends to repurchase at least HK$80 billion worth of its shares.