Tencent, Kuaishou, and Huya: What Stood Out in Their Q1 2025 Earnings
I went through the reports and calls—here’s what I found worth paying attention to.
This quarter, I’m taking another look at the earnings from Tencent 0700.HK $TCEHY, Kuaishou 1024.HK, and Huya HUYA 0.00%↑. Just like last time, I’m focusing on a few Chinese companies operating in related spaces. I sometimes like to read and write about several companies together because they work in similar fields, and you can learn a lot by seeing different companies talk about the same thing from different angles.
But again, this isn’t a detailed walkthrough of every line in the income statement. I won’t be dissecting gross margin trends by segment or calculating free cash flow conversions. What I’m doing is pulling out the things that stood out to me—developments that seemed under-discussed, or simply details I found interesting.
The goal here isn’t to drown in numbers, but to work out a few things that might actually matter.
Tencent: Playing the Long Game
More Investments in AI
Just as a quick reminder: two quarters ago, Tencent launched mini-shops, now effectively embedded at the core of the WeChat ecosystem. They also started talking less like a short video platform and more like an e-commerce operator. Then came last quarter’s pivot—shifting from ecosystem investments and capital returns to shareholders toward heavy reinvestment in AI and into themselves.
This quarter, Tencent continued to invest heavily in AI. They stated that high-quality revenue streams—advertising, evergreen games, and cloud—are funding these investments. They also pointed to tangible results: improved ad performance, stronger user engagement in games, and enhancements in cloud.
But this comes at a price. CapEx was up 91% year-over-year, and free cash flow fell 9% year-over-year. Tencent estimated that, based on past experience, they expect AI monetization to lag current investments by one to two years.
As a result of the continued spending, they expect the gap between revenue growth and gross profit growth to narrow.
Tencent on Chips
Tencent sounded confident on the chip front—saying they can more or less build out their AI ambitions as planned. And this time, they even slipped in a subtle jab at their U.S. counterparts during the call.
We start to move off the concept or the belief of the American tech companies, which they call the scaling law, which requires continuous expansion of the training cluster. And now we can see even with a smaller cluster, you can actually achieve very good training results. And there's a lot of potential that we can get on the post-training side, which do not necessarily meet very large clusters. So that actually sort of help us to look at our existing inventory of high-end chips and say, we should have enough high-end chips to continue our training of models for a few more generations going forward.
Tencent Q1 2025 earnings call
The value of Wechat 微信
It’s hard to overstate the role of WeChat. There’s simply no equivalent to this kind of super app outside China. And Tencent is leaning heavily into that advantage. They believe the WeChat ecosystem—with its data, social graph, messaging, communities, official accounts, video content, and mini-programs—gives them a structural edge. Not just in e-commerce via mini-shops, but also in building AI agents on the Yuanbao platform.
Long Runway
Recently, Tencent’s earnings have started to move with the predictability of a metronome—steady, measured, almost boring.
That said, I believe Tencent is deliberately under-earning. With the government having closely scrutinized tech companies in the past, showing off strong revenue and profit growth wasn’t exactly fashionable. Even after the high-profile meeting between the top leadership and major tech firms, which marked a shift back toward investment for names like Alibaba and Tencent, Tencent still seems to be holding back.
Tencent thinks like business people—focused on extracting long-term value from the business, thinking in years, not quarters. It’s a mindset the analyst brain simply cannot comprehend. One analyst on the call got excited about the acceleration in marketing revenue and, as expected, started projecting it out to infinity. James Mitchell shut that down immediately.
I wouldn't read too much into the quarter-by-quarter fluctuations in the advertising revenue growth rate. It's been within a band. And frankly, the first quarter was at the upper end of that band. And we wouldn't even necessarily desire an acceleration. For us, it's more important to really preserve a very long runway for sustaining that band for many -not quarters, but many years to come.
James Mitchell, Q1 2025 call
They repeatedly mentioned thinking about certain businesses in terms of a long runway. A phrase that came up several times during the call. This applied not just to their advertisement efforts, but also to mini-shops and the short video platform, where they’re deliberately keeping ad load low.
What stood out this quarter is how clearly Tencent is playing the long game—focused on extending the value of their assets over time, not cashing in early.
More of the Gaming Pie for Tencent
When asked about the recent lawsuit over App Store fees, Tencent made it clear they expect improved margins going forward, with a larger share of revenues staying in-house. That would benefit both domestic and international game operations.
I’ll discuss this in more detail below when covering Huya. Huya plays a central role in Tencent’s game distribution strategy, so there’s clear potential upside here as well.
On Fintech and Macro
The real drag this quarter was their fintech business, mainly due to weak commercial payment volumes. However, Tencent noted that, at least before the new tariffs consumer sentiment appeared to have bottomed out and should gradually recover.
I think when we look at the first quarter, we see the number of transactions continue to go up, but then the pricing actually goes down, right? And our hypothesis is that it could be a little bit of the last leg of the supply side competition as the demand side start to warm up. And I think the April trend somewhat confirms it. But that's really before the tariffs start kicking in, right? So without the tariff, I think we clearly see that the consumption pattern has bottomed out and start to slowly recover.
Martin Lau, Q1 call
Summary:
Tencent is following through on its AI investment strategy and is clearly playing the long game. Tencent is still under-earning on multiple fronts. Ad load remains deliberately low, there’s upside from taking a larger cut in gaming, as App Store fee reductions could further boost margins of game developers. They also expect Chinese consumer sentiment to have bottomed out, setting the stage for a gradual recovery.
In the rest of this article, I take a closer look at Huya and Kuaishou. If you’re not yet a subscriber, consider signing up for a free or paid subscription. It helps me keep doing this work.
Articles I enjoyed this week. Check out these authors. Support their work if you like what they’re doing.
wrote about how rapidly AI is transforming China’s healthcare system. It’s astonishing. I’ve experienced it firsthand. wrote about an interview with the chairman of Great Wall Motors, who believes China’s electric vehicle market already has its own version of Evergrande. wrote about the decline of science in America—a topic that, as a scientist, I find deeply personal and difficult to confront.
