Tencent’s Q3 Profits Jump as Earnings from Gaming and AI Soar

Chinese gaming and social media company, Tencent has reported a profit surge in its quarter three earnings. According to CNBC, Tencent’s Q3 profit jump was driven by growth in advertising, games, and cloud services.

The social media and gaming giant said profit attributable to shareholders grew by 47% to hit $7.37 billion in the quarter under review. This surpassed the LSEG estimate of about $6.39 billion for the same period.

Robust Revenue Growth

Tencent owns WeChat Pay, one of the large mobile payment apps in China. The company reported an 8% increase in annual revenues to reach 167.2 billion yuan, up from 154.6 billion in quarter three. This increase is largely within analyst forecasts of 167.9 billion yuan. The company expects to generate significant cash flow over the next one year through share buybacks and dividends.

“During the third quarter of 2024, we delivered robust revenue growth in our games business, underpinned by consistent performance of evergreen games globally and contributions from new games with evergreen potential,” Tencent founder and CEO Pony Ma Huateng said.

In September 2024, Tencent signed a landmark deal with e-commerce giant Alibaba Holding to enable sellers accept payments through WeChat Pay. Tencent President, Martin Lau Chi-ping said the tech giant remains open to new collaborations as long as they are safe for users.

Even with Tencent’s profit surge, the tech giant has cautioned that economic recovery could take time. However, it expects that growth will accelerate in the long run following Beijing’s commitment to revive the country’s economy. In September 2024, the Chinese government announced measures for supporting economic growth and enhancing gains from the stock market.

Leveraging Artificial Intelligence

Tencent appreciated the benefits that it has reaped from deploying its own AI tools amidst the global artificial intelligence boom.

“We are increasingly seeing tangible benefits of deploying AI across our products and operations including marketing services and cloud, and will continue investing in AI technology, tools, and solutions that assist users and partners,” the company said during the earnings call.

The management however noted that revenue from cloud training AI is not as huge as it is in the US. The company attributed this to the smaller size of China’s enterprise market, the less vibrant SaaS ecosystem, and limitations in the number of AI startups in the country.

According to Tencent, the number of click-through rates and commercial queries has increased due to large language model capabilities. In June this year, the company upgraded one of its advertising features with AI to enable it to select or generate targeted ads for placement in articles and videos in its messaging app.

This update increased the number of its accounts by over 200,00 users. Tencent also developed its mini-program e-commerce product and short video accounts to enable it to compete with the local TikTok version called Douyin developed by ByteDance.

The Gaming Front

Gaming remained a major driver of Tencent gaming profit in the third quarter. Domestic revenues from this unit rose by 14% to reach the 37.3 billion yuan mark. The company reported an 11% increase in revenue from international games to about 14.5 billion yuan.

The company’s highest sales came from DnF Mobile, Honor of Kings, Battle of the Golden Spatula, and Peacekeeper Elite, which were the highest-grossing games on China’s Apple iOS store in September. Tencent expanded its gaming portfolio in the quarter under review after the government approved new titles each month, from July to September 2024.

“Whether internationally or domestically, the scarce resource in the industry is really evergreen games. Tencent’s strategy to tackle this is to leverage both its in-house studios as well as the investments and partnerships with external studios, which the company is seeking to deepen,” Tencent’s Chief Strategy Officer James Mitchell said.

The company’s gaming strategy focuses on creating evergreen hits through investments in different studios and publishing titles.