Tencent signals slow AI monetisation; gaming drives 8% Q3 revenue growth
Domestic gaming revenue rises 14%, driven by new releases
Fintech, cloud services grow 2%; payments business declines
AI revenue trails U.S. peers due to lower domestic demand
Recasts with AI revenue outlook; adds executive comments on AI development in paragraphs 4 and 5
BEIJING, Nov 13 (Reuters) -Chinese gaming and social media leader Tencent Holdings 0700.HK said its investment in artificial intelligence has yet to turn into significant revenue and may take several quarters to have a meaningful impact on earnings.
Tencent has intensified AI efforts over the past two years, developing services for large-language model training and deployment. It has also launched Yuanbao, a chatbot powered by its proprietary Hunyuan LLM.
The company and fellow Chinese tech giants have poured billions of dollars into AI development in a race to launch ChatGPT-like services but monetisation remains a challenge.
"There are ... fewer AI start-ups in China which are actually buying a lot of compute (power)... The AI revenue in China on the cloud side is somewhat at scale for us, but I think it will not be exploding like in the U.S.," Tencent President Martin Lau said on a post-earnings call with analysts late on Wednesday.
Tencent has deployed AI to enhance its products, such as by offering more targeted advertising, but these initiatives have not generated significant revenue and may take several quarters before related earnings reach a meaningful scale, Lau said.
Domestic peers Baidu 9888.HK and Alibaba 9988.HK, which have also invested heavily in AI, report earnings in coming days.
Shares in Tencent, the world's largest video game company and operator of the WeChat messaging platform, rose 1.54% in Hong Kong trading on Thursday.
GAME STUDIOS
The company reported revenue of 167.19 billion yuan ($23.14 billion) for the quarter ended Sept. 30, in line with the 167.8 billion yuan average of analyst estimates compiled by LSEG.
Domestic gaming revenue rose 14% to 37.3 billion yuan, extending the previous quarter's 9% growth which in turn followed 2 quarters of decline. International gaming revenue increased 9% to 14.5 billion yuan.
Gaming growth was driven partly by "Dungeon & Fighter Mobile", a marquee title launched in May, and helped by shooting game "Delta Force", released in September.
Its investment portfolio was boosted by the August release of "Black Myth: Wukong", a globally successful game based on the Chinese classic "Journey to the West" from a developer in which Tencent owns a stake.
As part of a gaming expansion strategy, Chief Strategy Officer James Mitchell said it aims to discover and invest in more game studios like the developer of "Black Myth: Wukong" while continuing to leverage its own studios.
Tencent's fintech and cloud services reported modest growth of 2% to 53.1 billion yuan, with its payments business declining in part due to weak consumer spending in China.
Revenue from marketing services - formerly known as online advertising - grew 17% to 30 billion yuan.
Net income rose 47% to 53.23 billion yuan versus the 52.89 billion yuan average of analyst estimates compiled by LSEG.
($1 = 7.7791 Hong Kong dollars)
($1 = 7.2242 Chinese yuan renminbi)
Reporting by Liam Mo and Brenda Goh; Editing by Franklin Paul and Christopher Cushing
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