$TENCENT(00700.HK) 0700 has looked downright ugly

$TENCENT(00700.HK) 0700 has looked downright ugly lately, mainly because Tencent has been far quieter on AI than other tech majors. As the battle heats up for the next-gen user interface entry point, the company seems unhurried.

Before our deep-dive on the company is out, Dolphin Research offers a quick take.

Bulls argue Tencent is adept at late-mover catch-up, and its composure comes from owning the market’s most comprehensive social graph. Users may scroll Douyin or shop on Taobao, but they still return to WeChat to check messages and new posts from favorite Official Accounts.

So Tencent can afford to watch and iterate on what an AI super-entry should look like.

Bears counter that even if users can’t ditch WeChat in the near term, time spent can still be eroded, as short video did to Tencent’s broader ecosystem. As users grow accustomed to new interaction models, social graph migration isn’t impossible over the long run, as seen with Weibo before, and even QQ to WeChat.

These scenarios assume Tencent has no counter for a long stretch, which isn’t the case. The biggest move is a talent grab, with a heavy push on LLM hiring and team build-out to make up for base model R&D and org design over the past two years.

What looks like restrained capex may also reflect objective constraints.

As Dolphin Research noted in prior discussions on China big tech and AI, 2024 will see a tougher fight for consumer AI entry points. With Q1 being the prime window for exposure, expect plenty of moves from the majors.

We already saw Doubao make the Spring Festival Gala, and yesterday Qwen Agent rolled out a broader commercial ecosystem. What about Tencent? What will Yuanbao play next? Dolphin Research will be watching.

Lastly, while Alibaba’s Qwen has topped search trends these past two days, Tencent quietly issued a results pre-announcement and detailed the 2026 WeChat Open Class. Against sell-side expectations, here’s the quick read:

(1) Q4 fundamentals: steady growth, in line with expectations.

a. Revenue: low-teens growth. Ads and games remain strong; ads benefit from Video Accounts and AI-driven efficiency, games from ‘Delta Force’ momentum.

QoQ, growth may ease on last year’s high base and a one-off buyout revenue contribution from overseas titles in Q3. FinTech is constrained by subdued consumption, while enterprise services benefit from WeChat e-comm and Mini Program ecosystems; in AI cloud, Tencent has limited external GPU leasing to prioritize internal demand, so growth should hold its run-rate without a clear acceleration.

b. Profit: while higher R&D and depreciation weigh, better GPM and disciplined opex should keep profit growth well above revenue growth, near ~20% YoY.

(2) WeChat Open Class: updates focus on WeChat Shops (service providers driving rapid GMV growth) and Mini Games (to cushion the impact from new rev-share rules by Apple and WeChat, the company will offer new-title incentives for developers).

For Mini Program AI enablement, management targets a 2x scale increase in 2025 and plans to launch an AI app growth program.

WeChat remains the most promising landing zone for AI Agents, anchoring the bull case for Tencent’s AI future. That said, given the need to serve the full user base, product refinement and adequate infrastructure must be in place before a full rollout.