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TCEHY Stock Declines 4% as Q1 Earnings and Revenues Miss Estimates
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Key Takeaways
TCEHY's shares fell after Q1 earnings and revenue missed estimates despite 9% revenue growth.
Tencent's Marketing Services revenue jumped 20% on AI-driven ad upgrades and Weixin tools.
Tencent increased AI and server infrastructure spending as cloud and AI demand accelerated.
Tencent Holdings’ (TCEHY - Free Report) shares have declined 3.9% since the company reported first-quarter 2026 results on May 13. The downtrend can be attributed to the quarter's top-line and bottom-line misses, with the later timing of the Spring Festival shifting a portion of games-related revenue recognition out of the first quarter and weighing on reported growth despite solid underlying demand.
Tencent reported earnings of $1.06 per share, missing the Zacks Consensus Estimate by 0.93%. In domestic currency, earnings were RMB 7.364 per share, up 12% year over year.
In dollar terms, Tencent reported revenues of $28.36 billion, missing the Zacks Consensus Estimate by 4.94%. Net revenues increased 9% year over year to RMB 196.5 billion. Adjusting for the Spring Festival timing shift, total revenue growth would have been 11% year over year. Combined MAU of Weixin and WeChat increased 2% year over year to 1,432 million, underscoring resilient engagement as Tencent scaled newer AI-led initiatives.
Gaming Metric Details
Domestic Games revenue grew 6% year over year to RMB 45.4 billion, with revenue growth lagging gross receipts growth as the later timing of the Spring Festival deferred a portion of revenue recognition into subsequent periods.
Key drivers included Honor of Kings, Peacekeeper Elite, Delta Force and VALORANT Mobile, with both Honor of Kings and Peacekeeper Elite achieving lifetime highs in quarterly gross receipts. Peacekeeper Elite recorded a peak DAU of 90 million with gross receipts rising more than 30% year over year.
International Games revenue increased 13% year over year to RMB 18.8 billion, primarily driven by Clash Royale, Wuthering Waves and VALORANT PC. Newer release Roco Kingdom: World, launched March 26, achieved more than 13 million average DAUs in its first month and sustained high user retention rates. Social Networks revenue declined 2% year over year to RMB 31.9 billion, reflecting the Spring Festival timing impact on domestic app-based game item sales.
TCEHY Sees Broad-Based Segment Growth
Marketing Services revenue rose 20% year over year to RMB 38.2 billion, accelerating from 17% growth in the fourth quarter of 2025, supported by AI-driven ad recommendation upgrades and expanded closed-loop marketing capabilities within the Weixin ecosystem.
FinTech and Business Services revenue increased 9% year over year to RMB 59.9 billion, with FinTech Services benefiting from higher commercial payment and wealth management revenues, while Business Services was led by stronger cloud demand, including AI-related services and higher eCommerce technology service fees tied to Mini Shops GMV.
Operating Details of TCEHY
Gross profit rose 11% year over year to RMB 111.3 billion, with gross margin expanding 100 basis points to 57%. Selling and marketing expenses increased 44% year over year to RMB 11.3 billion, reflecting higher promotional spending to support the growth of new AI native applications and game launches. R&D expenses rose 19% year over year to RMB 22.6 billion, driven by increased AI investment, including higher equipment depreciation and associated operating costs, as well as higher headcount.
Operating profit was RMB 75.6 billion, up 9% year over year, with the operating margin largely stable at 38.5%. Excluding new AI products, operating profit was RMB 84.4 billion, up 17% year over year, with the corresponding operating margin expanding to 43% from 39.9%. Net profit attributable to equity holders was RMB 67.9 billion, up 11% year over year.
TCEHY Pushes Hy and Productivity AI Agents
TCEHY opened 2026 emphasizing progress on new AI products and broader deployment across core businesses. The Hy3 preview model, developed on re-architected AI infrastructure, has been top ranked in OpenRouter token measurements since April 28. WorkBuddy is currently the most widely used productivity AI agent service in China, while Marketing Services acceleration continued to benefit from AI-driven ad recommendation improvements and stronger closed-loop tools within Weixin.
TCEHY's Balance Sheet Details
As of March 31, 2026, Tencent had RMB 217.8 billion in cash and cash equivalents compared with RMB 141 billion as of Dec. 31, 2025. The company had restricted cash of RMB 7.6 billion and term deposits of RMB 205.5 billion.
For the first quarter of 2026, capital expenditures were RMB 31.9 billion compared with RMB 19.6 billion in the prior quarter, reflecting an accelerated pace of server infrastructure investment.
Free cash flow was RMB 56.7 billion, up 67% quarter over quarter and 20% year over year, driven by growth in games gross receipts and advertising billings, partly offset by higher server infrastructure and compute spending.
Total cash increased 12% to RMB 533.7 billion, and net cash position totaled RMB 146.9 billion, up 63%, giving the company flexibility to fund growth priorities.
The company repurchased approximately 12.7 million shares on the Hong Kong Stock Exchange for an aggregate consideration of HKD 7.6 billion during the quarter.
Shares of Broadcom have appreciated 22.9% year to date. The Zacks Consensus Estimate for Broadcom’s 2026 earnings is pegged at $11.45 per share, up by a penny over the past 30 days, indicating a year-over-year surge of 67.9%.
Shares of Celestica have appreciated 21.3% year to date. The Zacks Consensus Estimate for Celestica’s 2026 earnings is pegged at $10.16 per share, up 15.1% over the past 30 days, indicating a year-over-year jump of 67.9%.
Amphenol shares have declined 7.5% year to date. The Zacks Consensus Estimate for APH’s 2026 earnings is pegged at $4.76 per share, up 11.4% over the past 30 days, indicating a year-over-year increase of 42.5%.
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TCEHY Stock Declines 4% as Q1 Earnings and Revenues Miss Estimates
Key Takeaways
Tencent Holdings’ (TCEHY - Free Report) shares have declined 3.9% since the company reported first-quarter 2026 results on May 13. The downtrend can be attributed to the quarter's top-line and bottom-line misses, with the later timing of the Spring Festival shifting a portion of games-related revenue recognition out of the first quarter and weighing on reported growth despite solid underlying demand.
Tencent reported earnings of $1.06 per share, missing the Zacks Consensus Estimate by 0.93%. In domestic currency, earnings were RMB 7.364 per share, up 12% year over year.
In dollar terms, Tencent reported revenues of $28.36 billion, missing the Zacks Consensus Estimate by 4.94%. Net revenues increased 9% year over year to RMB 196.5 billion. Adjusting for the Spring Festival timing shift, total revenue growth would have been 11% year over year. Combined MAU of Weixin and WeChat increased 2% year over year to 1,432 million, underscoring resilient engagement as Tencent scaled newer AI-led initiatives.
Gaming Metric Details
Domestic Games revenue grew 6% year over year to RMB 45.4 billion, with revenue growth lagging gross receipts growth as the later timing of the Spring Festival deferred a portion of revenue recognition into subsequent periods.
Key drivers included Honor of Kings, Peacekeeper Elite, Delta Force and VALORANT Mobile, with both Honor of Kings and Peacekeeper Elite achieving lifetime highs in quarterly gross receipts. Peacekeeper Elite recorded a peak DAU of 90 million with gross receipts rising more than 30% year over year.
International Games revenue increased 13% year over year to RMB 18.8 billion, primarily driven by Clash Royale, Wuthering Waves and VALORANT PC. Newer release Roco Kingdom: World, launched March 26, achieved more than 13 million average DAUs in its first month and sustained high user retention rates. Social Networks revenue declined 2% year over year to RMB 31.9 billion, reflecting the Spring Festival timing impact on domestic app-based game item sales.
TCEHY Sees Broad-Based Segment Growth
Marketing Services revenue rose 20% year over year to RMB 38.2 billion, accelerating from 17% growth in the fourth quarter of 2025, supported by AI-driven ad recommendation upgrades and expanded closed-loop marketing capabilities within the Weixin ecosystem.
FinTech and Business Services revenue increased 9% year over year to RMB 59.9 billion, with FinTech Services benefiting from higher commercial payment and wealth management revenues, while Business Services was led by stronger cloud demand, including AI-related services and higher eCommerce technology service fees tied to Mini Shops GMV.
Operating Details of TCEHY
Gross profit rose 11% year over year to RMB 111.3 billion, with gross margin expanding 100 basis points to 57%. Selling and marketing expenses increased 44% year over year to RMB 11.3 billion, reflecting higher promotional spending to support the growth of new AI native applications and game launches. R&D expenses rose 19% year over year to RMB 22.6 billion, driven by increased AI investment, including higher equipment depreciation and associated operating costs, as well as higher headcount.
Operating profit was RMB 75.6 billion, up 9% year over year, with the operating margin largely stable at 38.5%. Excluding new AI products, operating profit was RMB 84.4 billion, up 17% year over year, with the corresponding operating margin expanding to 43% from 39.9%. Net profit attributable to equity holders was RMB 67.9 billion, up 11% year over year.
TCEHY Pushes Hy and Productivity AI Agents
TCEHY opened 2026 emphasizing progress on new AI products and broader deployment across core businesses. The Hy3 preview model, developed on re-architected AI infrastructure, has been top ranked in OpenRouter token measurements since April 28. WorkBuddy is currently the most widely used productivity AI agent service in China, while Marketing Services acceleration continued to benefit from AI-driven ad recommendation improvements and stronger closed-loop tools within Weixin.
TCEHY's Balance Sheet Details
As of March 31, 2026, Tencent had RMB 217.8 billion in cash and cash equivalents compared with RMB 141 billion as of Dec. 31, 2025. The company had restricted cash of RMB 7.6 billion and term deposits of RMB 205.5 billion.
For the first quarter of 2026, capital expenditures were RMB 31.9 billion compared with RMB 19.6 billion in the prior quarter, reflecting an accelerated pace of server infrastructure investment.
Free cash flow was RMB 56.7 billion, up 67% quarter over quarter and 20% year over year, driven by growth in games gross receipts and advertising billings, partly offset by higher server infrastructure and compute spending.
Total cash increased 12% to RMB 533.7 billion, and net cash position totaled RMB 146.9 billion, up 63%, giving the company flexibility to fund growth priorities.
The company repurchased approximately 12.7 million shares on the Hong Kong Stock Exchange for an aggregate consideration of HKD 7.6 billion during the quarter.
Tencent’s Rank & Stocks to Consider
Currently, TCEHY carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer and Technology sector are Broadcom (AVGO - Free Report) , Celestica (CLS - Free Report) and Amphenol (APH - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Broadcom have appreciated 22.9% year to date. The Zacks Consensus Estimate for Broadcom’s 2026 earnings is pegged at $11.45 per share, up by a penny over the past 30 days, indicating a year-over-year surge of 67.9%.
Shares of Celestica have appreciated 21.3% year to date. The Zacks Consensus Estimate for Celestica’s 2026 earnings is pegged at $10.16 per share, up 15.1% over the past 30 days, indicating a year-over-year jump of 67.9%.
Amphenol shares have declined 7.5% year to date. The Zacks Consensus Estimate for APH’s 2026 earnings is pegged at $4.76 per share, up 11.4% over the past 30 days, indicating a year-over-year increase of 42.5%.