On Thursday, CLSA analyst Elinor Leung raised the rating for Tencent Holdings (700:HK) (OTC: OTC:TCEHY) from Outperform to High-Conviction Outperform, accompanied by a significant increase in the price target from HK$500.00 to HK$645.00. The upgrade comes as InvestingPro data shows Tencent, now valued at over $603 billion, has delivered an impressive 88% return over the past year and is currently trading near its 52-week high. This upgrade followed Tencent’s fourth-quarter earnings, which surpassed CLSA’s forecasts. The company’s total revenue saw an 11% year-over-year growth, reaching Rmb172 billion, exceeding CLSA’s estimates by 3%. Adjusted net profit experienced a substantial 30% year-over-year increase to Rmb55.3 billion, outperforming expectations by 7.8%. InvestingPro analysis reveals the company maintains strong profitability metrics, with a healthy 52.3% gross margin and 22% return on equity.
Tencent’s domestic games and online advertising revenues were highlighted as the primary contributors to the better-than-expected financial results. The gaming segment reported a robust 22% year-over-year growth, driven by the renewed success of its top two games and the release of new hit titles. Meanwhile, advertising revenue climbed by 18% year-over-year, bolstered by the company’s video account and search offerings.
Looking ahead, CLSA anticipates Tencent to maintain double-digit revenue growth and margin expansion in 2025. This optimistic outlook is based on a promising game pipeline and expected market share gains in the search and e-commerce advertising sectors. As a prominent player in the Interactive Media & Services industry, Tencent’s financial health score is rated as "GREAT" by InvestingPro, which has identified 12 additional investment tips for this stock, available to subscribers. The analyst firm has also increased its adjusted net profit forecasts for the years 2025 and 2026 by 4% and 5%, respectively.
Tencent’s early adoption of artificial intelligence (AI) applications is also expected to be a key driver for the business, according to CLSA. The analyst’s commentary suggests that the company’s strategic focus on AI could yield significant benefits across its various business units. With these positive developments, Tencent’s stock rating has been upgraded to reflect the company’s strong performance and potential for continued growth.
In other recent news, Tencent Holdings has seen significant developments affecting its financial outlook. Jefferies analyst Thomas Chong has raised the price target for Tencent to HK$646.00 from HK$550.00, maintaining a Buy rating. Chong’s analysis suggests that the current share price has already accounted for potential negative scenarios, and he sees a favorable shift in risk and reward for the company. Meanwhile, Morgan Stanley (NYSE:MS) has adjusted its price target for Tencent to HK$550.00, down from HK$570.00, while keeping an Overweight rating. The firm projects a 16% year-over-year growth in Tencent’s online games for the fourth quarter of 2024, with domestic games expected to grow by 18% and international games by 14%.
Morgan Stanley also anticipates a 14% increase in advertising revenue, driven by advancements in AI ad technology and video account monetization. New game releases like Delta Force and Path of Exile 2 are showing strong performance, contributing to Tencent’s positive growth outlook. Despite some adjustments to the price target, Morgan Stanley remains optimistic about Tencent’s potential, citing a strong pipeline of new games and improved advertising strategies. These recent developments highlight the dynamic environment Tencent is navigating and the confidence analysts have in its future growth.
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