5 Things to Watch as Tencent Reports Its Q4 2024 Earnings

TradingKey - It has been a 2025 to celebrate so far for Chinese tech investors are China’s technology giants ride a wave of investor optimism. That’s in stark contrast to the huge sell-off happening in the US right now.

However, even beyond the strong share price gains so far this year, China’s technology companies’ actually businesses were performing relatively well. And in the Chinese tech ecosystem, companies don’t cone any bigger than online gaming and WeChat owner Tencent Holdings Ltd (HKEX: 700) (OTC: TCEHY).

The tech giant reports its Q4 2024 and FY2024 earnings on Wednesday (19 March) before the market opens in the US. Here are five big things that investors should be watching before Tencent reports its latest results.

1. Gaming revenue

Gaming revenue will be under the microscope – as always – with Tencent as the company is the largest online gaming company in the world.

The company saw a robust Q3 2024, with its Domestic Gaming revenue rising by 14% year-on-year to RMB 37.3 billion (US$5.2 billion) while its International Gaming division saw revenue of RMB 14.5 billion – up 9% year-on-year. 

That rate of growth exceeded Tencent’s overall revenue growth of 8% for Q3 2024, with top line revenue coming in at RMB 167.2 billion for Q3 2024.

With more games being approved in China, and the company striking up some successful gaming partnerships overseas, it looks like the regulatory “winter” has come to an end. That will be good news for gaming companies such as Tencent, which is looking to build on the successful summer 2024 launch of Dungeon & Fighter Mobile.

2. Advertising sales

As with any online business with a massive user base, Tencent is looking to build out its online advertising capabilities.

The company’s Marketing Services business (which includes its online ad business) was actually the fastest-growing segment in Q3 2024, as it notched up 17% year-on-year revenue growth to hit RMB 30 billion for the period.

Marketing Services was Tencent’s fastest-growing segment in Q3 2024

Sources: Bloomberg, company filings

Its strength in games and e-commerce helped push ads revenue higher while video accounts marketing services revenue increased a whopping 60% year-on-year as Tencent strengthens its offerings in Weixin – incentivising advertisers to try to boost content and conversion rates. 

Investors will be looking to hear more positive updates from management on its ad sales business for Q4 2024.

3. AI integrations

With DeepSeek making waves this year in the world of Artificial Intelligence (AI), investors will want to hear more updates from Tencent on this front.

The company has already previously said (in Q3 2024) that AI was helping the company improve ad targeting and they’re continuing to look at ways to integrate the technology to further boost its existing services.

However, investors should also remain realistic on this front. In November last year, during the firm’s Q4 2024 earnings call, Tencent management cautioned against expecting a short-term surge in AI revenue given how nascent China’s enterprise-software market is.

4. Profitability and margins 

Tencent surprised to the upside in Q3 2024 as net income for the company came in at RMB 53.2 billion, beating the average analysts’ consensus expectation by around 17%.

Tencent is consistently profitable and investors will be looking to see if the company can again provide an upside surprise in the final quarter of 2024. 

Meanwhile, operating margins have expanded in recent quarters. In Q3 2024, operating margin hit 36.6%, up 320 basis points from the same period in 2023 and also expanding by 30 basis points from Q2 2024.

Given the firm’s track record of operating efficiency, Tencent investors will be looking for the company to continue to squeeze out efficiency gains and hope to see that through an expanding operating margin in Q4 2024.

5. Cash flow, share repurchases and dividends

On the cash flow front, Tencent is robust. Operating cash flow came to RMB 78.1 billion in Q3 2024 while free cash flow was an impressive RMB 58.5%.

It’s on the free cash flow front that Tencent really shone, with that figure up 45% year-on-year and highlights just how profitable and cash flow generative the firm really is.

That has allowed Tencent to accumulate cash on its balance sheet and as of the end of Q3 2024, Tencent had a net cash position of RMB 95.5 billion, which was up 33% year-on-year.

No doubt, investors will want to see more cash being added to its balance sheet to potentially fund further share repurchases. Remember, at the beginning of 2025 – when Tencent shares sold off on a US government blacklisting – management bought back a record of around 8 million shares in just two days.

Investors will be hoping more capital will be either allocated to more share buybacks or an increase in the final dividend.