On Monday, Loop Capital upheld its positive stance on Tencent Holdings (700:HK) (OTC: OTC:) stock, maintaining a Buy rating and a price target of HK$585.00. The firm adjusted its expectations for the company’s revenue growth, now anticipating a 2% increase in the Business Services segment for the third quarter, a reduction from the previously estimated 4%.
The forecast for the Advertising segment was also revised, with growth now expected to be 14% in the third quarter, down from the earlier prediction of 16%, marking a significant deceleration from the second quarter.
The revised expectations come as ecommerce platforms have shifted their focus from aggressive traffic acquisition to providing subsidies for merchants and users through discounts and coupons.
This change in strategy has impacted Tencent’s mobile ad network, which experienced a year-over-year decline in the second quarter. This trend is expected to persist into the third quarter.
Despite a quieter slate of premium content on Tencent Video compared to a robust lineup in the first half of the year, Loop Capital sees enduring structural drivers for Tencent’s advertising business.
Loop Capital’s outlook for Tencent remains optimistic, with an expectation of a positive future should stimulus measures spur a recovery in consumption as anticipated. The firm believes such a scenario would be very favorable for Tencent’s advertising segment. While the immediate forecasts have been tempered, the long-term perspective suggests confidence in the company’s ability to navigate the evolving market dynamics.
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