Tencent Strengthens Video Leadership, Showcases Revenue Growth Potential: Analyst

Goldman Sachs analyst Ronald Keung maintained a Buy rating on Tencent Holdings ADR (OTC:TCEHY) and a price target of 542 Hong Kong dollars ($69.70 U.S. dollars).

Keung attended the Tencent Video All-Star Night alongside investor meetings held in Macau on Jan. 4, 2025, hosted by Tencent’s Chief Strategy Officer James Mitchell, Tencent Video CEO Sun Zhonghuai, China Literature CEO Hou Xiaonan and the Investor Relations team.

The analyst flagged platform leadership over the years on the back of patience and balanced execution and transformation mindsets, demonstrated by a consistent track record of surpassing its competitors and subsequently becoming the industry leader across multiple internet domains (Tencent Video, Tencent Pay, Tencent Games) leveraging effective deployment of resources.

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Keung highlighted the company’s focus on critical resources and multi-strategies for exploring AI opportunities. With critical resources such as the company’s hypercomputing cluster (HPC) and increasingly sophisticated data, the company noted it had narrowed the gap with domestic and global peers and is on track to explore generative AI opportunities, including to-C applications, given its unique, highly engaging WeChat ecosystem, with users opening the Weixin app 40-50 times a day.

The analyst flagged Tencent Video’s help in solidifying the company’s leadership in online video entertainment driven by art and technology. He noted Tencent Video is gradually entering a period of high-quality content creation with healthy profitability through focusing resources on slates, improving the membership mix, taking anti-pirating measures by limiting the number of devices per account, and continuing operating expenditure discipline.

Keung highlighted China Literature as a key catalyst for the company. The three-stage development of IP enables Tencent to monetize its key IPs emerging from online literature by adapting them into multiple entertainment formats, including games, drama, animation, and merchandise sales, and gradually expand overseas in the long term.

Keung came out of the event remaining confident in Tencent’s extended runway of revenue growth and compounding the potential for earnings, with Tencent’s unique WeChat ecosystem and global gaming and content assets with multiple emerging monetization levers across video account, e-commerce (with MiniShops and its recent launch of the Weixin gifting function), Weixin search, wealth management and enterprise software, that should enable the company to deliver compounding of earnings growth through volatile macrocycles.  

Tencent is trading at 15 times 2025E P/E (12 times ex-portfolio), with a consistent shareholder return policy where it surpassed its 2024 annual buyback target with 112 billion Hong Kong dollars ($14,403,760,000 U.S. dollars) worth of shares repurchased versus a target of over 100 billion Hong Kong dollars ($12,860,330,000 U.S. dollars), which reduced its total share count to the lowest level in the past 10 years.

TCEHY Price Action: Tencent Holdings stock is down 8.18% at $48.82 at publication Monday.

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