Tencent Earnings: Game Content Updates and China Reopening Lift Overall Results

Wide-moat Tencent’s first-quarter earnings mildly exceeded our and Refinitiv's consensus expectations. Additionally, with China reopening and the latest success of Video Accounts, the good old days of double-digit revenue growth are back. While we fine-tune our near-term forecasts, our fair value estimate of HKD 704 is unchanged. Going into the rest of this year, we expect sales leverage to be the primary driver of earnings growth. We believe the current market valuation of 13 times forward core earnings, as of May 18, 2023, indicates that the market underestimates the longer-term revenue contribution from Video Accounts and the potential for more operating leverage as the internet giant cements a more efficient cost structure.