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Tencent Reports Strong Q4 2024 Earnings Amid AI Investments

Tencent has reported a strong Q4 2024, with overall revenue growth of 11% year-on-year. Key highlights include increased gross and operating profits, driven by AI initiatives and expansion in their services. This performance indicates positive sentiment for investors considering Tencent's stock.

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AI Rating:   8

Strong Financial Performance
Tencent reported a total revenue of 172 billion RMB for Q4 2024, which reflects an 11% year-on-year increase. The gross profit also increased to 91 billion RMB, marking a 17% rise. Moreover, the non-IFRS operating profit surged by 21% to 59 billion RMB.

The net profit attributable to equity holders rose by an impressive 30% to reach 55 billion RMB. The rise in profits indicates a healthy financial position, strengthened by the company's diverse revenue streams and a focus on high-margin business activities.

Earnings Per Share (EPS)
On a non-IFRS basis, the diluted EPS for Tencent was reported at 5.91 RMB, which is a significant year-on-year increase of 33%. This considerable growth in EPS signals effective cost management and the impact of share buybacks.

Profit Margins
Overall gross margin for the company improved to 53%, up 3 percentage points compared to the previous year. Value-added services (VAS) gross margin increased to 56% on a year-on-year basis, aided by a higher mix of high-margin domestic games revenue. The marketing services gross margin also expanded to 58% due to growth in high-margin video accounts and Weixin search revenues.

Free Cash Flow (FCF)
Free cash flow stood at 4.5 billion RMB, experiencing a significant decrease of 87% year-on-year. This decline is attributed to increased capital expenditures on GPUs, servers, and data centers for AI initiatives. While the drop may raise concerns, the strategic investment in AI infrastructure could lead to better long-term cash flow performance.

Future Outlook
Tencent's strategy of investing in AI and enhancing its fintech capabilities appears to be on track for generating lucrative returns. The anticipated rise in the performance of its various segments, including marketing services (up 20%), suggests an optimistic sentiment as the company continues to integrate AI into its operations. Overall, the numbers clearly underline Tencent's position for continued growth.

Stocks:  TCEHY