Tencent Q4 2025 First Take: results were broadly in line with expectations and lacked surprises, so the market reaction is likely muted.
Focus now shifts to the call, where we look for guidance on this year's growth outlook amid a big game slate and AI tailwinds, as well as plans for Capex and shareholder returns.
1) Revenue: games and ads delivered strong growth, while FinTech & Business Services was lukewarm.
Games performed well across China and overseas, and ads came in slightly below Bloomberg consensus; several houses had trimmed ad forecasts earlier this year given soft consumption.
Based on Dolphin Research's checks, Q4 ads for WeChat Channels, Mini Games, Search, and Tencent Music were solid.
By contrast, Official Accounts declined, and media ads across QQ, Sogou, and Tencent News remained a drag.
Consumption headwinds also weighed on FinTech & Business Services.
Combined revenue for the two segments rose 8%, with enterprise services up 22%; rough math implies FinTech grew mid-single digits, pointing to a slow recovery.
2) Profitability: the margin uptrend remains intact, with OP margin up 200bps YoY.
Marketing spend tied to AI products such as Yuanbao was notable, with promo expenses up 44% YoY and QoQ spend higher by ~RMB 1.5bn.
Beyond limited new game launches, this was likely mainly paid user acquisition for Yuanbao, and Q1 sales & marketing will only be higher.
Other expense growth was driven by AI-related server costs and R&D personnel.
Overall opex ratio rose another 50bps YoY but was offset by GPM improvement.
Gross margin improved across all three segments, helped by a higher mix of self-developed titles (lower revenue sharing) and a greater share of Channels ads.
3) Capital allocation: Q4 Capex was HK$19.6bn, up QoQ, while cash outflow was HK$22.4bn due to prepayments.
Even on a cash basis, 2025 full-year Capex will be under HK$90.0bn, implying a notably larger budget this year.
Q4 stood at HK$19.6bn and full-year at HK$77.2bn; the board announced a dividend of HK$5.3 per share, implying ~HK$48.0bn in total, up 18% YoY.
If excess cash is funneled into AI (compute buildout domestically and abroad, and more product/model development), buybacks may remain constrained and potential shareholder yield could stay below ~2.5%.
This may disappoint value-oriented funds that came in over the past two years for higher shareholder returns.
From Dolphin Research's perspective, AI competition is more urgent and core to the business, with Tencent relatively behind; Tencent's investment stance is conservative and has room to step up (Capex at ~10% of revenue, below global tech leaders).
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