Q2 2026 Tencent Holdings Ltd Earnings Call Transcript
Key Points
- Total revenue grew 11% year-on-year to RMB205 billion, with gross profit up 13% and non-IFRS operating profit up 9%, demonstrating solid financial performance.
- Hunyuan 3 production version achieved a 6x increase in average daily token usage and ranks among the top 3 models globally on OpenRouter, validating its practical utility and cost-performance.
- WorkBuddy and CodeBuddy are achieving breakout user growth and are clear leaders in China's AI productivity market, with high retention and willingness to pay among users.
- Domestic games revenue grew 17% year-on-year, driven by successful titles like Delta Force, Valorant PC, and Roco Kingdom: World, which ranked first among new games released in China this year.
- Marketing services revenue grew 22% year-on-year, driven by AI-driven ad targeting and increased impressions, with ad loads on Weixin Video Accounts still well below industry average, indicating further growth potential.
- AI infrastructure investments provide downside protection, as compute can be rented out at cost recovery or better via Tencent Cloud, with management noting a 30% profit on recent compute orders.
- Xiaowei prototype within Weixin leverages the ecosystem's social graph and mini-programs, laying groundwork for agent-to-agent transactions and long-term monetization potential.
- Operating profit excluding new AI products grew 19% year-on-year, but including them, growth was only 9%, indicating significant drag from AI investments.
- Operating CapEx surged 190% year-on-year to RMB51.8 billion, leading to negative free cash flow of RMB13.8 billion in the quarter, despite strong core business cash generation.
- Net cash position dropped sharply from RMB146.9 billion to RMB58.2 billion due to capital expenditure payments and dividend payouts, reducing financial flexibility.
- International games revenue declined 1% year-on-year (up 4% in constant currency), with decreases from two Supercell games partially offsetting growth from other titles.
- Long-form video subscription revenue decreased 6% year-on-year, indicating challenges in that segment despite overall social network revenue growth.
- R&D expenses rose 35% year-on-year, and selling and marketing expenses increased 26%, reflecting higher costs to support AI initiatives and game marketing, pressuring margins.
- Management acknowledged potential headwinds in the China advertising market due to economic consumption softness, which could impact future marketing services growth.
Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2026 second quarter results announcement webinar. I am Wendy Huang from Tencent IR team. (Event Instructions) Please be advised that today's webinar is being recorded.
Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent.This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website.
Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma,
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