To The Moon

$TENCENT(00700)$ is going release 22Q4 earnings report after close March 22. Previously, the market is expecting Pony Ma's "cost reduction and efficiency increase" , which would be boosted in the second half of 2022

Now the consensus goes,

• Revenue 144.5 billion yuan, which was basically the same year-on-year;
• Game revenue 41.8 billion yuan, -2.3% year-on-year;
• Social networks (live broadcast, videos, etc.) 29.2 billion yuan, which was flat year-on-year;
• Online advertising 22.1 billion yuan, a year-on-year increase of 2.6%;
• Financial and corporate income 50.2 billion yuan, a year-on-year increase of 4.8%;
• EBITDA 42.68 billion yuan, a year-on-year increase of 16.7%
• The adjusted net income 30.8 billion yuan, a year-on-year increase of 24%.

However, it is worth noting that, Tencent's revenue has missed consensus in the past five quarters. The adjusted net income in the last two quarters exceeded market expectations, in other words, the actual effect of reducing costs and increasing efficiency may also exceed market expectations. Now, if Tencent's performance is expected to be higher in the market, it is believed that Q4's revenue growth may reach 2%

Noted, Q4 is the last quarter of the pandemic, and offline activities are affected to some extent. Payment and enterprise may also be affected, but accordingly, it may benefit online entertainment. Games and social entertainment account for a higher proportion of Tencent's revenue, so investors can also properly consider this factor and slightly adjust Tencent's performance expectations.

We believe that,

In terms of games, in terms of performance in the first three quarters of 2022, Tencent Games showed slightly better resilience than the overall game market,Among them, "Valorant", "Apex Hero" in overseas games and "Fantasy Tower" released by agents have performed well. In 2023, the whole game industry showed a moderate recovery trend, and more version numbers were issued, including big companies like Tencent. Although these may not be displayed in the first two quarters of 2023,It is expected to see a transfer point in the second half of 2023.

In terms of content, Tencent Video may still be affected by the advertising downturn in Q4, but after entering 2023, with the launch of many important works such as Three-body, the market feedback is optimistic, which also lays the foundation for the subsequent subscription and advertising growth.

In additionThe short video will become the key in 2023. In June 2022, the MAU of WeChat short video has exceeded 800 million, which has surpassed the Douyin, but how to increase the user's usage is vital. Video is undoubtedly the core business in 2023. Previously, it was said in the conference call that the demand for short video information flow advertising is strong, and the related revenue is moving towards 1 billion yuan per quarter, and it does not conflict with other businesses. At the same time, if the future short video can be closer to the transaction, it can also increase the e-commerce business.

The growth of financial technology and cloud business in Q4 will still be affected by the epidemic, but it is also expected to increase in 2023. Cost reduction and efficiency increase will be more reflected in this department, and Tencent Cloud is expected to achieve profitability.

Where is Tencent's share price going?

If the valuation is based on profit multiples, Tencent's current dynamic P/E is only about 16 times, which is still the bottom of the low valuation in the past 10 years.

At present, the general P/E of big companies in social, media and games is generally more than 20X, including$Meta Platforms, Inc.(META)$(18 times),$Netflix(NFLX)$(34 times),$Walt Disney(DIS)$(36 times),$Naver Corporation(NHNCF)$(40 times),$Nexon Co Ltd.(NEXOF)$(20 times),$Activision Blizzard(ATVI)$(40 times),$Nintendo Co., Ltd.(NTDOY)$(17 times),$NetEase(NTES)$(19 times),$Apple(AAPL)$(26 times)

Tencent, as one of the most important companies in Hang Seng Index and Hang Seng Technology Index, should enjoy a higher valuation when it is expected to recover strongly in 2023.

In addition,Two important variables of Tencent's share price are repurchase and major shareholder sales. Since the repurchase was stopped one month before the financial report was announced, the performance of the disk was weak due to the reduction of major shareholders. After the financial report was announced, the repurchase and the reduction of major shareholders are expected to balance again and continue to support the stock price.