FIRST SHANGHAI: TENCENT (00700) Q3 financial performance in line with expectations, year-on-year growth expected. Advertising business may continue to grow strongly.

FIRST SHANGHAI released a research report stating that TENCENT (00700) will release its 2024 Q3 financial report on November 13. According to Visible Alpha's expectations, Q3 revenue is expected to reach 167 billion yuan, an 8% year-on-year increase, with value-added services, advertising, cloud, and financial revenue expected to be 82.3 billion, 29.6 billion, and 53.5 billion yuan respectively. Game revenue is expected to continue to rise due to new products and hit games. The advertising business will benefit from platforms like Video Number, leading to an increase in revenue year-on-year. The cloud business will focus on high-quality growth, while financial cloud will focus on the demand in the large-model market. WeChat Pay and Taobao Tmall interoperability will increase the technology service fee. Key points from FIRST SHANGHAI: Consistent expectations for the third quarter of 2024 According to Visible Alpha's consistent expectations, revenue for the third quarter is expected to be 167 billion yuan, an 8% year-on-year increase. Value-added services in the third quarter are expected to reach 82.3 billion yuan, an 8.71% year-on-year increase. Advertising in the third quarter is expected to rise by 15.18% year-on-year to 29.6 billion yuan. Advertising revenue is expected to continue to grow year-on-year, with Video Number remaining a main driver of growth. Cloud and financial revenues are expected to reach 53.5 billion yuan in the third quarter, a 2.75% year-on-year increase. Non-GAAP net profit in the third quarter is expected to increase by 19.55% year-on-year, to around 53.7 billion yuan. Long-standing game strategy stabilizes growth, AI empowers advertising efficiency, and the growth of traffic from platforms like Video Number, mini-games, and search ads helps commercial revenue During the performance meeting, management is expected to provide new outlooks on this year's hit games and future commercial development of games. Thanks to the rebound of large games and outstanding performance in mobile games, the company's game revenue is expected to continue to rise in the coming quarters. Domestically, currency monetization of Peace Elite accelerated by the end of July, with Honor of Kings maintaining 100 million DAUs and Dungeon & Fighter remaining in the top 4 of game charts in the third quarter. Overseas games continue to contribute revenue, with Honor of Kings overseas version performing well, ranking top 3 in Sensor Tower's China mobile game overseas market download chart in July, and overseas games are expected to maintain steady growth throughout the year. In terms of new game products, Delta Action, launched at the end of September, has already registered over 25 million users in its first week. Advertising revenue is expected to rise year-on-year due to the rapid development of Video Number and operational optimization. Increased loading rates of Video Number, upgrades of WeChat mini stores, continuous growth of WeChat search ads, and increased gaming traffic during the summer all provide strong support for the advertising business. With the AI technology empowering Tencent's advertising 3.0 platform, the high gross profit margin momentum of the advertising business is expected to continue. The cloud business will continue to pursue operational efficiency while reducing costs, focusing on high-quality growth. In terms of financial cloud, the company is mainly focused on the increasing demand for cloud computing brought by the environment of large-model market, as well as commercialization of projects like mini programs. WeChat Pay and Taobao Tmall started interoperability at the end of September, leading to a significant increase in technology service fees in Q4 and 2025. It is expected that the company's overall revenue will improve this year; cost reduction and efficiency enhancement will continue, with sales and management expenses lower than expected, and the anticipation for possible promising disclosures of Video Number data. Management is expected to provide clearer guidance during the conference call.