Tencent Holdings Limited reported its fourth quarter and annual results for 2024, showcasing improvements in key services, developments in AI, growth in gaming, video, music, and marketing services, as well as enhancements in FinTech. The company also emphasized its commitment to providing returns to shareholders through dividends and share buybacks.

Tencent has reported an 11% year-on-year increase in fourth-quarter revenue to 172 billion RMB, with a 30% rise in non-IFRS net profit. The company has emphasized its significant investments in AI, such as the development of the Hu Yuan Foundation model, multi-model strategies for optimal user experiences, and AI integration into enterprise services. Tencent has also mentioned the acceleration of AI in cloud services and its impact on revenue growth.

The company emphasizes the significant returns gained from incorporating AI into its advertising, gaming, and media services, resulting in higher user engagement, revenue growth, and improved efficiency in content creation. It outlines the progress made in implementing AI since 2015, the restructuring of AI teams, and the proposal for substantial increases in capital expenditures and investments in research and development by 2025, in addition to commitments to return capital to shareholders.

In the fourth quarter, Tencent reported a return to double-digit revenue growth, up 11% year-on-year, with strong contributions from domestic games, video accounts, advertising, and cloud services. Gross profit grew 17% year-on-year, driven by high-margin revenue streams and cost efficiency. The company highlighted successes in social networks, domestic and international games, marketing services, and FinTech and business services, noting particularly robust performances in music subscriptions, long-form video subscriptions, and Evergreen games. Tencent also emphasized innovations in mini-games platforms, search services, and AI-enhanced advertising platforms, alongside growth in FinTech services and business services revenue.

In the fourth quarter of 2024, the company reported a total revenue of 172.4 billion RMB, an 11% increase year-on-year. The gross profit was 19.7 billion RMB, up 17% year-on-year. Operating profit saw a significant increase of 24% year-on-year, reaching 51.5 billion RMB. Key financial highlights include stable interest income, reduced finance costs due to exchange gains, and a substantial increase in share profit of associates and joint ventures. Diluted earnings per share grew by 33% year-on-year to 5.91 RMB, outpacing non-IFRS net profit growth. Non-IFRS operating profit reached 59.5 billion RMB, increasing by 21% year-on-year, and net profit attributable to equity holders rose to 55.3 billion RMB, up 30% year-on-year. The gross margin improved to 53%, with segment-specific margins showing growth. Operating expenses decreased, while research and development expenses increased, reflecting investment in AI initiatives. Non-IFRS operating margin expanded to 34%, a 3-percentage point increase year-on-year.

Operating CapEx increased by 421% year-on-year to 34.9 billion RMB, driven by increased investments in GPUs and AI capabilities. Total CapEx rose by 386% year-on-year to 36.6 billion RMB, mainly due to data center construction. Free cash flow decreased by 87% year-on-year to 4.5 billion RMB, as a result of higher CapEx spending on GPUs, servers, and other expenses. The net cash position decreased by 20% quarter-on-quarter to 705.6 billion RMB. In 2024, the company repurchased 307 million shares for HK$112 billion, doubling the number of shares and total consideration from the previous year. A proposed annual dividend of HK$4.5 per share represents a 32% increase from the previous year.

The conversation is centered around how to manage the financial effects of investing more in AI technology on the company's margins and profitability, as well as questions about the company's e-commerce strategy after successful recent projects.

The company is addressing concerns about the rising costs caused by increased spending on research and development for artificial intelligence and higher capital expenditures. They are emphasizing that these investments are generating good margins and high returns, especially in advertising technology, gaming, and cloud computing businesses. They are highlighting improvements in the efficiency of graphics processing units for training large language models and anticipate making money from two specific activities related to inference through advertising revenue and value-added services. Their goal is to protect margins despite short-term cost pressures.

The discussion highlights the long-term initiative of developing a unified platform, called the mini shop, which aims to connect all components of the shopping ecosystem. This ecosystem includes social infrastructure, content, search, merchant programs, transaction platforms, and more, designed to help consumers easily find high-quality products and merchants. Key strategies include reducing costs through software and better algorithms, using the gifting feature during important times like Chinese New Year to boost word-of-mouth promotion, and creating a delivery map from user addresses to facilitate smoother transactions. The platform is experiencing rapid growth, with positive feedback from both consumers and merchants, underscoring a gradual approach to building and expanding the ecosystem over time.

The management is discussing the high demand for AI services targeted at businesses, but limited by a lack of supply, and they are making plans to expand their software solutions. They are also talking about the changing landscape of AI applications for consumers, focusing on growth, diversification, and integrating the technology into different products to improve user experiences.

The management is discussing strategies to increase the user base for their AI chatbot and search service, focusing on innovation, providing access to high-quality content, and implementing a multi-model strategy. They are also considering the possibilities for AI search to outperform traditional search methods and are outlining plans to generate revenue through subscription models and performance advertising.

The discussion delves into the possibilities of using AI technology to boost growth in marketing services more quickly, citing a strong 17% growth rate and the positive effects of machine learning seen in other countries. It also questions the expected growth in both domestic and international markets for the upcoming year, taking into account the higher starting point for domestic markets in the second half of the year and the influence of AI in the gaming industry.

The company saw a significant increase in advertising growth in the fourth quarter, thanks to AI improvements that provided better return on investment for advertisers. In the gaming industry, despite worries about a higher starting point, the company is showing potential with rising deferred revenue, expanding user bases for popular games, and the possibility of using AI to improve game development and user experience, aligning with the strategy for long-lasting games.

The inquiry examines the change in commercial payment revenue from declining to stable growth in the past few quarters, aiming to understand the trends in Q1 2025. It also looks into the reasons behind the company's recommended ratio of capital expenditure to revenue, inquiring whether it suggests a decrease in demand for AI or if the previous year's growth will satisfy current needs.

The observations point out a growth in commercial transaction levels despite pricing pressures, suggesting a difficult yet potentially improving market. There are also talks about the strategic management of capital expenditure (CapEx), with an emphasis on the effective use of resources such as GPU servers to meet demands like artificial intelligence, while also staying adaptable to market changes.

The company saw growth in advertising revenue from different industries such as e-commerce, finance, and education. AI improvements were first implemented in video accounts before being expanded to other platforms and the advertising network. The company's allocation of capital will focus on decreasing share buybacks compared to the previous year, increasing dividends, and possibly making investments in mergers and acquisitions due to high demand in the AI industry.

The speaker highlights a strategy that involves investing in AI for future profits while also ensuring the current value for shareholders by issuing dividends and buying back shares. They stress the importance of having a solid financial foundation and being able to adapt and invest further in AI technologies.

The discussion focuses on the company's goal of achieving growth of high quality and expanding margins, emphasizing the importance of utilizing gross margin leverage and the influence of new revenue streams with higher margins. Management elaborates on the current change in revenue mix that is leading to faster growth in gross profit compared to revenue, and anticipates continued leverage in gross profit despite reaching a plateau. The conversation also addresses the need for a balance when investing in artificial intelligence.

Translation: Un representante de City Securities felicita a AIA por su sólido trimestre e indaga sobre el progreso y los desarrollos de la compañía en inteligencia artificial, especialmente en modelos grandes.

AI asks for management's opinion on the key competitive factors that will impact the future of large models and requests more information on the organization's competitive advantages.

The discussion focuses on identifying competitive advantages in a crowded market with many competitors, emphasizing the importance of clarity on unique selling points.

The discussion focuses on methods for boosting user interaction by incorporating AI agents into different software platforms. It stresses the importance of using top-notch models and tapping into the existing ecosystems in apps such as browsers and social media. It also highlights the potential of AI agents to handle intricate tasks, enhance user satisfaction, and guarantee data safety and convenience. Additionally, it mentions the various user activities within platforms that present distinct benefits for AI integration.