Tencent, one of China's tech giants, posted a robust 47% year-on-year surge in its third-quarter profit for the period ending September 30, 2024. The company reported a profit of 53.23 billion yuan ($7.37 billion), exceeding analyst expectations, which had pegged the figure at 46.18 billion yuan. This impressive growth was largely driven by strong performances in gaming, advertising, and cloud services.

Tencent's revenue for the quarter reached 167.19 billion yuan, a modest 8% increase compared to the previous year. While this growth did fall slightly short of the analyst forecast of 167.82 billion yuan, it marks a continuation of Tencent’s consistent upward trajectory. Importantly, the company pointed to signs of economic recovery as the Chinese government rolled out new policies to stimulate growth, which could further accelerate its financial performance in the coming quarters.

Gaming remains Tencent's cornerstone, with domestic gaming revenue climbing by 14% year-on-year to 37.3 billion yuan. International gaming revenue also saw an uptick, increasing by 11%, signaling continued strength in global markets. Tencent’s strategic focus on "evergreen" games—titles with long-lasting appeal—appears to be paying off, as evidenced by the global release of the much-anticipated game Black Myth: Wukong, in which Tencent holds a 5% stake.

Advertising, another key revenue stream for Tencent, posted a notable 17% increase to 29.99 billion yuan. The company attributed this growth to robust advertiser demand, particularly for short-video content, mini-programs, and search features within its Weixin (WeChat) platform. Tencent continues to expand its ecosystem, increasingly integrating these services for seamless user experiences and leveraging its strong user base, which reached 1.38 billion monthly active users in Q3.

One of the most significant developments in Tencent's recent performance has been its investment in artificial intelligence (AI). The company reported tangible benefits from deploying its self-developed AI tools across various business segments. AI has been integrated into Tencent’s marketing services, enhancing the effectiveness of its advertising tools. Additionally, AI-driven improvements in WeChat’s search functionality have resulted in higher engagement and click-through rates. Tencent has also invested in AI to support its cloud business, despite challenges in the domestic market, where the enterprise cloud ecosystem is less developed compared to the U.S.

The company’s push to expand its short-video accounts and mini-programs in response to competition from ByteDance’s Douyin (the Chinese version of TikTok) has also been a success. In the third quarter, Tencent’s mini-programs, which are used for a wide range of services, including food ordering, electric vehicle charging, and medical services, achieved a gross merchandise value (GMV) exceeding 2 trillion yuan. Most of this GMV came from services rather than physical goods, underscoring the platform's versatility.

Looking ahead, Tencent expects continued growth in its various business segments, with a particular focus on gaming, AI, and advertising. The company has indicated that it expects to generate substantial free cash flow next year, which will be used for dividends and share buybacks. While the broader economic environment may still pose challenges, Tencent’s diversified business model and strategic investments position it well to capitalize on future growth opportunities, particularly as AI continues to gain momentum.

CNBC