Tencent’s Terrific Q1 Earnings
7 Min. Read Time
Tencent Earnings Review
Tencent (700 HK) reported Q1 financial results after the Hong Kong close today that beat analyst expectations on the big three: revenue, adjusted net income, and adjusted earnings per share (EPS). Unfortunately, due to a flight, I was not able to join the earnings call. Nonetheless, it was a solid beat! Party on, Garth! Party on, Wayne!
- Revenue increased by +13% to RMB 180 billion ($25.1 billion) from RMB 159.5 billion versus expectations of RMB 175.6 billion.
- Revenues from Value Added Services (VAS), which is a catch-all terms for non-core businesses such as fintech, increased by 17% year-over-year (YoY) to RMB 92.1 billion in the first quarter of 2025.
- Domestic Games revenues were RMB 42.9 billion, representing a 24% YoY increase from a low base in the same period last year.
- International Games revenues were RMB 16.6 billion, reflecting a 23% YoY increase.
- Revenues from Marketing Services were RMB 31.9 billion for the first quarter of 2025, reflecting a 20% YoY increase. “This growth was primarily due to robust advertiser demand… Marketing Services revenues increased across most major industry categories during the quarter.”
- Revenues from FinTech and Business Services increased by 5% YoY to RMB 54.9 billion for the first quarter of 2025. FinTech Services' revenue growth was due to higher revenues from consumer loan services and wealth management services.
- Adjusted Net Income increased by +22% to RMB 61.3 billion ($8.5B) from RMB 50.3 billion and versus expectations of 59.7 billion.
- Adjusted EPS was RMB 6.58 from RMB 5.26 and versus expectations of RMB 6.39.
- During the first quarter of 2025, the Company repurchased approximately 43 million shares on the Hong Kong Stock Exchange for a consideration of approximately HKD 17.1 billion.
Key News
Asian equities had a strong session, led by Hong Kong, Indonesia, Vietnam, Taiwan, and South Korea. There was considerable market chatter about the strength of China's currency, the Renminbi or CNY, versus the US dollar, possibly driven by bond buying and other measured by the People’s Bank of China (PBOC), which runs counter to the prevailing narrative that they are devaluing the currency.
Regulators intervened to prevent “industry chaos” caused by “vicious competition” following JD.com’s entry into the food delivery business with significant subsidies, which threaten Meituan’s core business. This echoes previous episodes of aggressive competition in sectors such as solar, ride hailing (Uber versus DiDi), and, more recently, electric vehicles (EVs) and hybrids, which have benefited consumers but negatively impacted company balance sheets. Regulators summoned JD.com and Meituan to ensure compliance with laws, emphasizing their focus on “curbing low-price competition and homogenized competition.” They stated that JD.com’s entry should “avoid touching the regulatory red line” regarding subsidies and commission policies. JD.com rose 3.36% after posting better-than-expected first quarter results, while Meituan gained 1.46%, as regulatory scrutiny could benefit its position.
Insurance and brokerage stocks had an exceptional day on speculation that onshore mutual funds may become buyers due to their current underweight positions. Shipping companies also performed well, buoyed by positive developments in US-China trade talks and the launch of a 90-day truce in the trade war.
Hong Kong saw strong trading volumes and broad market participation, led by growth stocks, even as financials outperformed. Mainland investors were net buyers via Southbound Stock Connect, though several growth stocks were net sells, likely as a funding source for battery giant CATL's upcoming initial public offering (IPO) in Hong Kong. Mainland China’s markets were more mixed compared to Hong Kong's markets overnight.
April aggregate financing year-to-date was RMB 16.43 trillion, just below expectations of RMB 16.577 trillion and up from March’s RMB 15.18 trillion. New loans year-to-date reached RMB 10.06 trillion, below expectations of RMB 10.474 trillion and up from March’s RMB 9.78 trillion. Alibaba Group, NetEase, and KE Holdings are scheduled to report results tomorrow.
Index Changes and Market Structure
My favorite investment book? Without question, it is the MSCI Global Investable Market Indexes Methodology. Those 207 pages dictate the allocation of USD 16.3 trillion in active and passive assets. MSCI released its pro-forma for the end of the month: the United States’ weight in the index has declined to 61.7% from 63.7% at the end of April and from 66% just a few months ago. China’s market share within emerging markets has increased to 29.8%, although 17 companies will be deleted versus 6 additions, bringing China’s numerical weight to 47% (568 of 1,206 emerging market stocks). Remember, MSCI limits Mainland-listed Chinese stocks to only 20% of their potential index weight.
India’s rise continues, but its size and scale remain relatively small compared to China, at 19.4% of the emerging markets index with 157 stocks. If US-China trade talks progress positively, could an easing of the geopolitical narrative prompt MSCI to resume China A-share inclusion? Currently, Chinese A shares represent only 20% of their potential market capitalization in indices; full inclusion would significantly increase China’s weight, likely approaching 50% of the MSCI Emerging Markets Index. While it is early days, the market may be underestimating how a trade deal could lead to President Trump sidelining China hawks within the GOP. Would Trump allow American Depositary Receipt (ADR) delisting to jeopardize a major trade deal? I doubt it. Again, it is early, but something to consider.
What is your favorite investment book?
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 2.3% |
| Hang Seng Tech | HSTECH Index | 2.1% |
| Hong Kong Turnover | HKTurn Index | 1.4% |
| Hong Kong Short Sale Turnover | HKSST Index | 23.9% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 14.7% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 218.2 |
| China (Shanghai) | SHCOMP Index | 0.9% |
| China (Shenzhen) | SZCOMP Index | 0.5% |
| China (STAR Board) | Star50 Index | 0.4% |
| Mainland Turnover | .chturn Index | 2% |
| Nouthbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | 0.6% |
| Japan | NKY Index | -0.1% |
| India | SENSEX Index | 0.2% |
| Indonesia | JCI Index | 2.2% |
| Malaysia | FBMKLCI Index | 0.1% |
| Pakistan | KSE100 Index | 0.2% |
| Philippines | PCOMP Index | -0.2% |
| South Korea | KOSPI Index | 1.2% |
| Taiwan | TWSE Index | 2.1% |
| Thailand | SET Index | 0.2% |
| Singapore | STI Index | -0.3% |
| Australia | AS51 Index | 0.1% |
| Vietnam | VNINDEX Index | 1.3% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 121 | 107 |
| Advancing Stocks | 335 | 2061 |
| Declining Stocks | 126 | 2779 |
| Outperforming Factors | Large Caps, Liquidity, Quality | Large Caps, Value, Momentum |
| Underperforming Factors | Low Volatility, Dividend Yield, Value | Low Volatility, Growth, Liquidity |
| Top Sectors | Discretionary, Communication, Financials | Financials, Staples, Energy |
| Bottom Sectors | ||
| Top Subsectors | Media/Entertainment, Financial Services, Auto | Insurance, Shipping, Securites |
| Bottom Subsectors | National Defense, REITs, Healthcare Equipment | Construction, Aerospace, Household Products |
| Southbound Connect Buys | HK Tracker ETF (Very Large), Alibaba (Small) | |
| Southbound Connect Sells | Xiaomi (Large), SMIC,Tencent (Moderate), Meituan, UBTech Robotics (Small) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 151 | 2.52 |
| Communication Services | 9 | 2.68 |
| Consumer Discretionary | 28 | 2.86 |
| Consumer Staples | 13 | 2.02 |
| Energy | 7 | 2.05 |
| Financials | 23 | 2.65 |
| Health Care | 13 | 1.49 |
| Industrials | 20 | 0.87 |
| Information Technology | 10 | 2.61 |
| Materials | 10 | 1.18 |
| Real Estate | 6 | 0.74 |
| Utilities | 12 | 0.74 |
| Mainland China Listed | 404 | 1.13 |
| Communication Services | 6 | 1.31 |
| Consumer Discretionary | 31 | 0.7 |
| Consumer Staples | 24 | 2.01 |
| Energy | 13 | 1.39 |
| Financials | 64 | 2.18 |
| Health Care | 31 | 0.6 |
| Industrials | 64 | 0.5 |
| Information Technology | 91 | 0.34 |
| Materials | 58 | 0.67 |
| Real Estate | 6 | 0.47 |
| Utilities | 16 | 0.53 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 3 |
| Alibaba HK | 9988 HK Equity | 3.4 |
| JD.com HK | 9618 HK Equity | 3.4 |
| NetEase HK | 9999 HK Equity | 1.3 |
| Yum China HK | 9987 HK Equity | 2.5 |
| Baozun HK | 9991 HK Equity | -6.1 |
| Baidu HK | 9888 HK Equity | 4 |
| Autohome HK | 2518 HK Equity | 1.1 |
| Bilibili HK | 9626 HK Equity | 0.8 |
| Trip.com HK | 9961 HK Equity | 1.6 |
| EDU HK | 9901 HK Equity | 1 |
| Xpeng HK | 9868 HK Equity | 3.9 |
| Weibo HK | 9898 HK Equity | 3.1 |
| Li Auto HK | 2015 HK Equity | 4.5 |
| Nio Auto HK | 9866 HK Equity | 3.5 |
| Zhihu HK | 2390 HK Equity | 1.1 |
| KE HK | 2423 HK Equity | 3.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | 12.8 |
| Meituan HK | 3690 HK Equity | 1.5 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | 3 |
| ALIBABA GROUP HOLDING LTD | 3.4 |
| XIAOMI CORP-CLASS B | 3.6 |
| MEITUAN-CLASS B | 1.5 |
| PING AN INSURANCE GROUP CO-H | 4.2 |
| CHINA CONSTRUCTION BANK-H | 2.1 |
| BYD CO LTD-H | 4.7 |
| AIA GROUP LTD | 5.2 |
| SEMICONDUCTOR MANUFACTURING | 0.1 |
| JD.COM INC-CLASS A | 3.4 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| EAST MONEY INFORMATION CO-A | 5 |
| PING AN INSURANCE GROUP CO-A | 4.3 |
| EOPTOLINK TECHNOLOGY INC L-A | 2.6 |
| CITIC SECURITIES CO-A | 3.8 |
| AVIC CHENGDU AIRCRAFT CO L-A | 1.8 |
| KWEICHOW MOUTAI CO LTD-A | 2.8 |
| LUXSHARE PRECISION INDUSTR-A | -0.8 |
| CONTEMPORARY AMPEREX TECHN-A | 1.5 |
| ZHONGJI INNOLIGHT CO LTD-A | 2 |
| SHIJIAZHUANG CHANGSHAN BEI-A | 3.1 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 7.20 versus 7.20 yesterday
- CNY per EUR 8.10 versus 7.99 yesterday
- Yield on 10-Year Government Bond 1.67% versus 1.67% yesterday
- Yield on 10-Year China Development Bank Bond 1.70% versus 1.70% yesterday
- Copper Price +0.80%
- Steel Price +0.55%
