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Tencent Q1 Earnings: Margins Continue to Expand, AI-Powered Ads Grow while Gaming Declines
Tencent reported before market open and beat estimates today, with the advertising segment accelerating nicely year-over-year by 9-points. Where Tencent is stronger than it appears is on the margins, which we had outlined in our analysis last month. The beat on revenue was marginal at 159.5 billion Chinese yuan (RMB) reported ($22.5 billion USD) compared to 158.4 billion yuan (RMB) expected. On a IFRS basis, CNBC is reporting a 14% beat on the bottom line. Across the board, we have strong margin expansion. Despite strength in advertising, Fintech and Business services posted weaker growth YoY as did Revenues from VAS (gaming) and social networks. Overall, gaming is weighing on the revenue whereas AI is helping to drive the acceleration we are seeing in advertising. We break this down for you below with key points from management commentary.
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