Tencent Beats On Top & Bottom Line Despite AI Investments

Key News

Asian equities were mostly higher overnight as Hong Kong and Thailand outperformed, while Australia and Pakistan underperformed.

Hong Kong had one of its best days last night in the past couple of months. Trade optimism and earnings were key catalysts as Tencent reported Q2 earnings overnight, beating expectations.

Tencent Q2 Earnings Overview

• Revenue +15% to RMB 183.6B ($25.5B) versus estimate RMB 178.9B ($24.8B)
• Net Income RMB 51.8B ($7.2B)
• Margin 28%
• Earnings per Share (EPS) RMB 6.8 ($0.8) versus estimate 6.6 ($0.7)

Tencent beat analyst estimates on both its top and bottom lines. Analysts were expecting a slight hit to profit growth due to AI investments, but the company was able to manage expectations and come out ahead. Nonetheless, its report noted multiple new features within games and WeChat, its social media platform, driven by AI. Top-line revenue growth also accelerated slightly quarter-over-quarter, even though analysts were expecting a slowdown there.

Mainland investors were net sellers of Hong Kong-listed stocks and ETFs via Southbound Stock Connect today to the tune of $1.1 billion. The high net selling was likely due to profit-taking on the strong overnight movement. Tencent was one of the top net sales on its stellar earnings.

Internet stocks overall were mostly higher in Hong Kong. Alibaba recovered significantly from the past few sessions, gaining +6%, while JD was up +4%. Electric vehicles were mixed with NIO falling -3% and Li Auto gaining 3%. Semiconductor stocks had another good day.

Consumer-facing stocks and health care sector players also benefitted from a new stimulus measure. The government will subsidize some payments on certain types of personal loans, to a cap. This is an interesting and welcome development as China needs to encourage more borrowing. Despite rock-bottom interest rates, credit growth has been lackluster.

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Last Night’s Performance